{"id":"court_ctb_1644_0","court":"CTB","case_no":"22-50073","doc_number":1644,"sub_number":0,"doc_type":"ORDER","filed_date":"2023-04-10","title":"UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT BRIDGEPORT DIVISION In Re \\* Case No. 22-50073 (JAM) \\* HO WAN KW","summary_zh":null,"summary_en":null,"body_en":"UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT BRIDGEPORT DIVISION In Re \\* Case No. 22-50073 (JAM) \\* HO WAN KWOK and GENEVER \\* HOLDINGS CORPORATION, \\* \\* Debtor. \\* HK INTERNATIONAL FUNDS Adv. Proc. No. 22-05003 INVESTMENTS (USA) LIMITED, \\* \\* Bridgeport, Connecticut Plaintiff, \\* March 27, 2023 \\* v. \\* \\* DESPINS, \\* \\* Defendant. \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* \\* TRANSCRIPT OF EMERGENCY MOTION OF CHAPTER 11 TRUSTEE FOR ENTRY OF ORDER MODIFYING REPAIR RESERVE ORDER and MOTION FOR SUMMARY JUDGMENT ON FIRST COUNTERCLAIM BEFORE THE HONORABLE JULIE A. MANNING UNITED STATES BANKRUPTCY JUDGE APPEARANCES: For the Plaintiff, MELISSA WERNICK, ESQ. HK International and Chiesa Shahinian & Mei Guo: Giantomasi, PC One Boland Drive West Orange, NJ 07052 JAMES MORIARTY, ESQ. Zeisler & Zeisler, P.C. 10 Middle Street Bridgeport, CT 06604 Chapter 11 Trustee: LUC A. DESPINS, ESQ. Paul Hastings, LLP 200 Park Avenue New York, NY 10166 Proceedings recorded by electronic sound recording, transcript produced by transcription service. **Fiore Reporting and Transcription Service, Inc. 4 Research Drive, Suite 402 Shelton, Connecticut 06484 (203)929-9992**\n\nAPPEARANCES: (Cont'd.) For the Defendant, NICHOLAS A. BASSETT, ESQ. Luc A. Despins, Chapter 11 Paul Hastings, LLP Trustee: 200 Park Avenue New York, NY 10166 PATRICK R. LINSEY, ESQ. Neubert Pepe & Monteith, PC 195 Church Street New Haven, CT 06510 For the Creditor, Pacific ANNECCA SMITH, ESQ. Alliance Asia Opportunity Robinson & Cole Fund L.P.: 28 Trumbull Street Hartford, CT 06103 STUART SARNOFF, ESQ. O'Melveny & Myers LLP Times Square Tower 7 Times Square New York, NY 10036 For the Creditors Committee: IRVE GOLDMAN, ESQ. Pullman & Comley 850 Main Street Bridgeport, CT 06601 For the RCI Bridgeport, LLC, SABATO P. FIANO, ESQ. Interested Party: Zeldes, Needle & Cooper PC 1000 Lafayette Blvd. Bridgeport, CT 06601\n\n2\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 3 of 103\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 3 (Proceedings commenced at 11:09 a.m.) THE COURTROOM DEPUTY: Adversary no. 22-5003, HK International Funds Investment vs. Luc Despins. THE COURT: Good morning. If we could have appearances for the record, starting first with the Chapter 11 Trustee, please. MR. DESPINS: Good morning, Your Honor. Luc Despins, Chapter 11 Trustee. THE COURT: Good morning. MR. BASSETT: Good morning, Your Honor. Nick Bassett, from Paul Hastings, counsel for the Chapter 11 Trustee. THE COURT: Good morning. MR. LINSEY: Good morning, Your Honor. Patrick Linsey for the trustee. THE COURT: Good morning. Attorney Sarnoff, do you want to continue? MR. SARNOFF: Good morning, Your Honor. Stuart Sarnoff, on behalf of creditor PAX. I didn't know that we were a party to this action. THE COURT: Well, you're here so you might as well note your appearance. Go right ahead, counsel. MS. SMITH: Good morning, Your Honor. Annecca Smith, Robinson and Cole, Connecticut counsel to PAX. THE COURT: Good morning.\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 4 of 103\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
4 |\n|----|--------------------------------------------------------------|\n| 1 | MR. GOLDMAN:
Good morning, Your Honor.
Irve |\n| 2 | Goldman, Pullman and Comley, for the creditors committee. |\n| 3 | THE COURT:
Good morning.
Counsel? |\n| 4 | MS. WERNICK:
Good morning, Your Honor. Melissa |\n| 5 | Wernick, of Chiesa Shahinian & Giantomasi, on behalf of HK |\n| 6 | USA and Ms. Guo. |\n| 7 | THE COURT:
Good morning. |\n| 8 | MR. MORIARTY:
Good morning, Your Honor.
James |\n| 9 | Moriarty, from Zeisler and Zeisler, for the same parties. |\n| 10 | Attorney Wernick will be taking the lead on the |\n| 11 | summary judgment argument today and I just want to state for |\n| 12 | the record, because Attorney Barton's name is mentioned |\n| 13 | quite often, that he is traveling today on a pre-planned |\n| 14 | trip that was planned before the hearing was scheduled. |\n| 15 | That's why he's not present. |\n| 16 | THE COURT:
Okay.
Thank you.
Good morning. |\n| 17 | MR. FIANO:
Good morning, Your Honor.
Sabato |\n| 18 | Fiano, Zeldes, Needle and Cooper.
We just filed our |\n| 19 | appearance on behalf of an interested party, RCI Bridgeport, |\n| 20 | LLC, which actually operates the marina at which the subject |\n| 21 | vessel is housed.
So we obviously have some interest in |\n| 22 | terms of insurability and other things with respect to |\n| 23 | today's proceedings. |\n| 24 | THE COURT:
Okay.
Good morning. |\n| 25 | All right.
Trustee Despins, this is your motion |\n| | |\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 5 of 103\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 5 for summary judgment so please proceed. MR. BASSETT: Again, good morning, Your Honor. For the record, it's Nick Bassett, from Paul Hastings, counsel to the Chapter 11 Trustee. THE COURT: Good morning. MR. BASSETT: Your Honor, we had prepared some slides to help with our argument today, just a few of them. We've already shared them with opposing counsel and the other parties in the courtroom. May I approach? THE COURT: Certainly. Are those slides that are going to be shown, projected? MR. BASSETT: No, we can just -- I have enough copies. I think we can just use the hard copies. THE COURT: That's fine. Okay. Thank you. MR. BASSETT: The other thing I would note, Your Honor, before beginning is that this morning, I think some time within the last hour, or maybe slightly more than that, we filed a supplemental rebuttal declaration on the docket that just has a few additional exhibits attached to it by way of rebuttal to the papers that were filed last night by the counter-defendants. I may refer to some of those during the course of my argument today. THE COURT: Okay. Thank you. MS. WERNICK: Your Honor, if I may, the counter-defendants do have an objection to the reference to the\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 6 of 103\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
6 |\n|----|----------------------------------------------------------------|\n| 1 | exhibits that were filed this morning to which we have not |\n| 2 | had an opportunity to fully review and which it appears |\n| 3 | counsel intends to rely upon in his slide deck this morning. |\n| 4 | THE COURT:
Understood.
You can raise those |\n| 5 | during the course of the hearing.
Thank you. |\n| 6 | MR. BASSETT:
And, Your Honor, the only thing I |\n| 7 | would note is that they're all documents filed on the public |\n| 8 | docket in the PAX litigation.
So they're documents with |\n| 9 | which counsel, in particular Attorney Vartan, are very |\n| 10 | familiar.
And they just respond to points that were made in |\n| 11 | their papers. |\n| 12 | THE COURT:
We'll address those when and if they |\n| 13 | come up. |\n| 14 | MR. BASSETT:
Thank you. |\n| 15 | THE COURT:
Okay.
Go right ahead. |\n| 16 | MR. BASSETT:
So, Your Honor, the issue before the |\n| 17 | court today on summary judgment is whether there is any |\n| 18 | genuine issue of material fact as to whether collateral |\n| 19 | estoppel applies to the issue of the debtor's ownership of |\n| 20 | the Lady May, as set out in the trustee's first |\n| 21 | counterclaim. |\n| 22 | And as I will explain during the course of my |\n| 23 | argument today we believe it is clear that there is no such |\n| 24 | genuine dispute and to hold otherwise would only result in |\n| 25 | the waste of time and resources by allowing the counter- |\n| | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 7 defendants to relitigate the exact same issue of the yacht's ownership that was already decided against them and against the debtor by Justice Ostrager in New York Supreme Court in 2022. Now, Your Honor, going to the first page of the slide deck, or I guess the second page, it sets out the standard for collateral estoppel. The parties agree that New York law applies to the question of collateral estoppel in this instance because the decision was rendered by a New York court. Now under New York law -- again, I believe this is undisputed, the trustee needs to satisfy two elements. One, that there is an identical issue necessarily decided in a prior action and that issue is decisive of the current action. And then second that the party to be precluded from relitigating here, the counter-defendants, had a full and fair opportunity to litigate in that prior action. We submit that both elements are readily satisfied here and there is no genuine dispute of material fact as to their satisfaction. On the next page, Your Honor, we get into the first issue, which is whether there -- in the litigation before Ostrager and in this adversary proceeding, is an identical issue that was necessarily decided in that prior Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 7 of 103\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 8 action. I'll get to some of the quotes on the side deck in a moment, but before doing that I'll maybe take a step back or two just to provide a recap of some of the context and history that led to Justice Ostrager's February, 2022 decision. So as the court is aware by this point, in 2017 PAX commenced litigation against the debtor before Justice Ostrager in the New York Supreme Court on account of a guarantee of a loan that PAX made to one of the debtor's business entities. In September, 2020, PAX prevailed on its summary judgment motion against the debtor on that claim. Thereafter, later in 2020, PAX sought and obtained restraining orders prohibiting the debtor from dissipating his assets, including specifically the Lady May. Now in March of 2021 PAX filed a motion, which Justice Ostrager granted, which was an interim decision holding the debtor in contempt of court for violating the restraining orders that had been issued that prevented the Lady May from being moved outside the jurisdiction of U.S. waters, which had happened. After that March, 2021 order the debtor appealed. He appealed that contempt decision and he argued in the appeal, among other things, that that decision was improper Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 8 of 103\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 9 of 103\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 9 because Justice Ostrager, before rendering that initial March, 2021 contempt decision, should have held an evidentiary hearing and determined the issue of whether the debtor owned the Lady May. And while the appeal was pending -- so while that appeal was pending to the appellate division, on July 8th of 2021 PAX filed another motion before Justice Ostrager asking for him to hold the counter -- or to hold the debtor in final contempt of court for ongoing violations of the prior, March, 2021 restraining order. In response to that the debtor filed an opposition and at the same time Attorney Vartan, on behalf of HK USA, filed an affirmation supporting the debtor's opposition. And I'll get to the text and the context of that affirmation in a minute. Also, after the filing of that final contempt motion, Justice Ostrager noted, in response to some of the arguments that had been made on appeal by the debtor, that he would need to have -- he said he heard them say that there should be an evidentiary hearing on the issue of ownership and he promised that he would hold such a hearing. So the appeal was pending while all of these events were happening before Justice Ostrager. And on November 9th of 2021 the New York Appellate Division issued its order on the pending appeal of that March, 2021\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 10 decision. And what the appellate division found was that Justice Ostrager had properly acted within his discretion in holding the debtor in contempt. And then critically, for purposes of the motion before the court and the issue of collateral estoppel, and this is listed in the -- and highlighted in the slide before the court, the appellate division specifically instructed Justice Ostrager -- it said the motion court, i.e., the New York Court, Justice Ostrager, is instructed to proceed with an evidentiary hearing to resolve a dispute as to ownership and control of the yacht and to assess appropriate penalties. There's no ambiguity in that language as to what it instructed Justice Ostrager to do. Justice Ostrager in response to that decision -- that instruction from the appellate division, in fact, held an evidentiary hearing on February 2nd to decide this exact issue. And the decision that he ultimately rendered after that hearing on February 9th, 2022 is crystal clear in that regard and eliminates any doubt as to what the issue was that he was deciding. And this is Exhibit 18 of my initial declaration at ECF 150, where in his February 9th decision Justice Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 10 of\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 11 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 11 Ostrager said pursuant to the appellate division's order, this court scheduled the February 2nd, 2022 evidentiary hearing to resolve the issue of whether Kwok beneficially owns and controls the yacht. Period.\n\n Again, unequivocally clear as to what the issue was that Justice Ostrager was deciding in issuing his final contempt order.\n\n Not only did Justice Ostrager state the issue that he was deciding that way he, in fact, decided it consistent with the way he framed the issue.\n\n On the next slide you'll see at page 4 of the Ostrager decision, among his many findings and conclusions was that \"the testimony adduced at the hearing out of the mouths of the defendant's witnesses, which included Mei Guo and other witnesses that her counsel presented, clearly and convincingly demonstrated that Kwok beneficially owns and controls the Lady May and has utter contempt for this court and the judicial process.\"\n\n Not only did he make the unequivocal finding about the beneficial ownership and control, in the process of doing so he went out of his way to very specifically and very firmly reject all of the testimony that Mei Guo, on behalf of HK, USA, counter-defendants in this litigation, offered in support of an opposite conclusion.\n\nSpecifically, on page 6 and 7 of his decision he\n\n| Case 22-50073 | Doc 1644 | Filed 04/10/23
103 | Entered 04/10/23 10:57:36 | Page 12 of | |\n|---------------|----------|-----------------------|------------------------------------------------|------------|----|\n| | | | Ho Wan Kwok/HK USA v. Despins - March 27, 2023 | | 12 |\n| | | | | | |\n\n said, characterizing the testimony that he had heard from Ms. Guo, in short Ms. Guo's testimony that she owns and controls the Lady May cannot be credited in any respect. Ms. Guo appears to be a woman in her 20's, has introduced no evidence that she exercised dominion and control of the Lady May and provided no confirmation that she came into possession of the Lady May other than as a rouse to shield the Lady May from being levied upon by her father's creditors.\n\n In addition to that statement, Your Honor, although that -- not displayed on the slide here, I think this was also at page 4 of the Ostrager decision, he indicated that the evidence supported a finding that the debtor had provided the funds used to purchase the Lady May.\n\n So, again, Your Honor, from all of this it is crystal clear based on the appellate division order, Justice Ostrager's decision and response to that order and his findings that the issue he decided was whether the debtor beneficially owns and controls the yacht.\n\n And he decided resoundingly, after hearing evidence from the debtor and from the counter-defendants from HK, USA, that he did.\n\n And, Your Honor, I'll get to these specific documents more in a minute, but even if it weren't crystal clear based on the two orders that I just discussed what the\n\n#### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 13 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 13 issue was that decided, which by the way is, of course, identical to the issue before this court, which is does the debtor own the Lady May, in addition, the statements of the counter-defendants and their counsel, and their actions before Justice Ostrager make it clear that they understood exactly what the issue was that they were litigating.\n\n And I'll get to this document in more detail later when I talk about their active participation in the litigation, which is a second prong of the analysis, but if you look at -- as I mentioned earlier, in July of 2021 Attorney Vartan filed an affirmation in support of the debtor's opposition to the final contempt motion, which is several pages of him laying out in detail all the reasons why the court should find that HK, USA and not the debtor, owned the Lady May.\n\n So he clearly knew exactly what the issue was and he submitted an affirmation several pages long specifically to argue that issue.\n\n Similarly, before the hearing on February 9th, Mei Guo submitted a declaration, or her own affidavit, which served as her direct testimony, where she spends pages addressing that exact issue, and I'll get to the specific quotes from the document as well.\n\n So the court knew the issue it was deciding. It actually decided that issue and the counter defendants knew\n\n| | Case 22-50073
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14 |\n| 1 | what the issue was.
There's no dispute that that issue is |\n| 2 | the exact same as the issue before this court. |\n| 3 | In terms of some of the counter arguments that |\n| 4 | have been made, one of the counter arguments that we see in |\n| 5 | the papers filed last night was that the issues are somehow |\n| 6 | different because the issue before Justice Ostrager was |\n| 7 | whether the debtor should be held in contempt of court, |\n| 8 | whereas the issue before this court is who owns the yacht. |\n| 9 | The problem with that argument is that the issue |\n| 10 | that Justice Ostrager clearly said he needed to decide in |\n| 11 | order to issue the final contempt ruling, was who owns the |\n| 12 | yacht. |\n| 13 | The fact that that wasn't the ultimate exclusive |\n| 14 | question before him does not change the fact that he finally |\n| 15 | and necessarily decided that issue. |\n| 16 | And they cite a couple of cases that appear to be |\n| 17 | in support of this notion that if you have contempt |\n| 18 | proceedings previously and then other litigation |\n| 19 | subsequently, collateral estoppel doesn't apply, but the |\n| 20 | cases are completely in apposite.
They're not even remotely |\n| 21 | on point.
They're both divorce cases. |\n| 22 | One is McNeal vs. Frankie from the 8th Circuit in |\n| 23 | 1996.
That case involved a divorce decree pursuant to which |\n| 24 | one of the spouses, the defendant's wife, was said to be the |\n| 25 | 20 percent owner of a promissory note and was entitled to |\n\n| | Case 22-50073
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15 |\n| 1 | principal and interest distributions on the note. |\n| 2 | When the husband failed to send the payments to |\n| 3 | his spouse, his ex-spouse, in accordance with that decree, |\n| 4 | she filed a motion for contempt of court. |\n| 5 | Now while that was happening, in the interim the |\n| 6 | defendant -- the husband had engaged in a refinancing |\n| 7 | transaction and certain of the new entities that became |\n| 8 | liable filed for bankruptcy. |\n| 9 | After all of that, the wife filed another action, |\n| 10 | this time a litigation, making the argument that her claim |\n| 11 | on the old now refinanced promissary note was superior to |\n| 12 | and had priority over the claims of all these new interest |\n| 13 | holders. |\n| 14 | And the court naturally in that situation said |\n| 15 | that collateral estoppel didn't apply because the issues |\n| 16 | were entirely different. |\n| 17 | As the court said, the issue in a contempt lawsuit |\n| 18 | was whether the husband's refinancing transactions wilfully |\n| 19 | violated the language of the consent decree -- from the |\n| 20 | divorce decree. |\n| 21 | The issue in this lawsuit is the legal effect of |\n| 22 | the refinancing transactions on the wife's property rights, |\n| 23 | which depends on tenant in common principles. |\n| 24 | The court reiterated she does not merely seek to |\n| 25 | relitigate the issue that was litigated previously but |\n| | |\n\n### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 16 of\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
16 |\n|----|-----------------------------------------------------------------|\n| 1 | instead asked the court to decide the legal status of her |\n| 2 | security interests in the underlying collateral underlying |\n| 3 | the promissory note.
Completely different issues.
Not our |\n| 4 | case at all, because the same issue is necessary decided |\n| 5 | before Ostrager that is presently before this court. |\n| 6 | The other case is even less relevant.
This is |\n| 7 | Bouchard v. Sunburg.
It's -- I don't know if I have the |\n| 8 | right reference, but it's in the papers to the Reporter |\n| 9 | citation. |\n| 10 | But like the McNeal case, this also involved a |\n| 11 | divorce situation.
This time it was a child custody |\n| 12 | arrangement, and when one spouse didn't comply with that |\n| 13 | child custody arrangement, which included certain counseling |\n| 14 | sessions, a trial court decided that ultimately it was not |\n| 15 | going to force the children to continue going to these |\n| 16 | sessions because it wasn't in their best interests. |\n| 17 | Later, the same spouse sued for breach of contract |\n| 18 | separately and the issue of collateral estoppel was raised. |\n| 19 | Again, naturally, the court said these issues are |\n| 20 | completely different.
The court said first of all, the |\n| 21 | prior actions involved enforcement of court orders while the |\n| 22 | current is breach of contract -- the current action is |\n| 23 | breach of contract. |\n| 24 | And then the court said the orders focused on the |\n| 25 | custody of children based on the parties' agreement, more |\n\n| | Case 22-50073
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17 |\n| 1 | specifically the failure to comply with the orders requiring |\n| 2 | attendance at counseling sessions.
Such orders in that |\n| 3 | action are based on equitable considerations that arise |\n| 4 | under Connecticut child custody statutes. |\n| 5 | So the issue is whether or not the court should |\n| 6 | determine that it was in the best interests of the children |\n| 7 | to continue to engage in counseling sessions. |\n| 8 | By contrast, the breach of contract case, as the |\n| 9 | court recognized, dealt with the elements of breach of |\n| 10 | contract.
Was there a promise?
Was there a consideration? |\n| 11 | Was that promise breached and what were their damages? |\n| 12 | And the court said none of those issues were |\n| 13 | addressed by a court focusing on the interests of the |\n| 14 | children in determining whether or not counseling sessions |\n| 15 | should continue.
So collateral estoppel did not apply. |\n| 16 | Again, totally different circumstances. |\n| 17 | Other arguments that the counter-defendants raise, |\n| 18 | Your Honor, is -- they suggest that the final contempt |\n| 19 | decision from February of 2022 was somehow a temporary or |\n| 20 | interim decision. |\n| 21 | It was not. It was by its very terms, and the way |\n| 22 | it was teed up, was a final decision on the heels of the |\n| 23 | prior earlier March, 2021 order. |\n| 24 | And what they do -- what the counter-defendants do |\n| 25 | is they liken this to -- and they cite case law involving |\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 18 of\n\n| | 103 |\n|----|--------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
18 |\n| 1 | preliminary injunction decisions, and they say that those |\n| 2 | decisions should not be entitled to preclusive effect. |\n| 3 | But those decisions are completely inapplicable |\n| 4 | because in a -- the whole point is that when the court is |\n| 5 | deciding a preliminary injunction the issue is whether the |\n| 6 | party seeking the injunction has a likelihood of success on |\n| 7 | the merits. |\n| 8 | So by definition in a preliminary injunction |\n| 9 | setting the court is not finally determining success on the |\n| 10 | merits.
Here Justice Ostrager was finally determining the |\n| 11 | ownership question.
That's what he set out in his order. |\n| 12 | That's what the appellate division instructed him to do and |\n| 13 | that's what he, in fact, did. |\n| 14 | It's completely different.
It's not a preliminary |\n| 15 | injunction, likelihood of success standard that applied. It |\n| 16 | was a success on the merit standard that applied. |\n| 17 | And he found against the counter-defendants and against the |\n| 18 | debtor. |\n| 19 | The counter-defendants also argue that the |\n| 20 | decision was somehow temporary because Justice Ostrager was |\n| 21 | planning to have a subsequent hearing to determine the issue |\n| 22 | of -- they suggest whether HK USA was the debtor's alter |\n| 23 | ego. |\n| 24 | That is completely wrong.
There was never a claim |\n| 25 | filed by PAX in the New York litigation in which they sought |\n| | |\n\n| | Case 22-50073
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19 |\n| 1 | an ultimate determination as to alter-ego status with |\n| 2 | respect to HK USA. |\n| 3 | The only alter-ego claim brought was with respect |\n| 4 | to Genever and the Sherry-Netherland apartment.
There was |\n| 5 | never contemplated a final additional after the February 9th |\n| 6 | decision hearing to determine whether or not the Lady May |\n| 7 | was property of the estate.
It was decided in that hearing. |\n| 8 | And in support of that, Your Honor, you can see |\n| 9 | one of the exhibits that we filed in rebuttal is Exhibit 7, |\n| 10 | which is nothing more than the amended complaint that PAX |\n| 11 | filed in the New York litigation.
And that shows that there |\n| 12 | was a count in there for veil piercing with respect to |\n| 13 | Genever and the Sherry-Netherland.
There's no similar count |\n| 14 | anywhere in the record because there wasn't one with respect |\n| 15 | to the Lady May. |\n| 16 | Now -- one second, Your Honor. |\n| 17 | (Pause.) |\n| 18 | So, Your Honor, I think that takes us through the |\n| 19 | first issue in the collateral estoppel analysis but, |\n| 20 | obviously, I'll respond to any arguments that counsel may |\n| 21 | raise on reply. |\n| 22 | The second element of the test, as I said, is |\n| 23 | whether or not the party to be estopped -- here, the |\n| 24 | counter-defendants and HK USA in particular, had a full and |\n| 25 | fair opportunity to litigate the issue in the prior action. |\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 20 of\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
20 |\n|----|----------------------------------------------------------------|\n| 1 | Now this is on slide 5.
This requirement under |\n| 2 | New York law -- and again, I don't think this is disputed, |\n| 3 | if you look at the papers, is satisfied if the party to be |\n| 4 | estopped one, is in privity with the party against which the |\n| 5 | prior judgment was rendered or two, alternatively, actively |\n| 6 | participated in the prior litigation. |\n| 7 | And notably on this second prong of the collateral |\n| 8 | estoppel test, Your Honor, the law is clear that the party |\n| 9 | opposing the estoppel, here the counter-defendants, actually |\n| 10 | bear the burden of proof to show that they actively |\n| 11 | participated.
And I think it's abundantly clear they have |\n| 12 | not met that burden. |\n| 13 | And, in fact, we've satisfied both of the two |\n| 14 | alternative bases; privity and active participation. |\n| 15 | On the next slide, which is slide 6, this talks |\n| 16 | about privity.
And the standard that courts generally apply |\n| 17 | in determining whether there was privity, if you look at the |\n| 18 | case law, which we've cited in our brief, is that it's a |\n| 19 | very flexible standard that looks at all the facts and |\n| 20 | circumstances of the case.
There's no hard and fast rule, |\n| 21 | or hard and fast set of requirements. It's a flexible |\n| 22 | standard that looks at the relationship between the parties |\n| 23 | and whether or not they had an alignment of interest. |\n| 24 | Here it is not disputed at all, for obvious |\n| 25 | reasons, I think, that the debtor and his daughter have a |\n\n| | Case 22-50073
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21 |\n| 1 | very close relationship. |\n| 2 | It's also not disputed, based on evidence in the |\n| 3 | record and based on the counter-defendants own statements |\n| 4 | that the daughter and HK USA are essentially one and the |\n| 5 | same. It's not disputed that's it's her company.
There's |\n| 6 | evidence in the record and attached to my declaration that |\n| 7 | it has no employees. It has no other assets, according to |\n| 8 | them, other than the Lady May.
They're basically the same. |\n| 9 | So, therefore, it's -- I don't think subject to |\n| 10 | any genuine dispute that the debtor has a very close |\n| 11 | relationship both with his daughter and through her with HK |\n| 12 | USA. So that's sort of part one. |\n| 13 | Part two is they have -- they had in front of |\n| 14 | Justice Ostrager a very clear alignment of interest. If you |\n| 15 | look at the record, if you look at all the documents that |\n| 16 | were submitted, the pleadings that are attached to my |\n| 17 | initial declaration and my rebuttal declaration it is |\n| 18 | crystal clear that they both -- both the debtor and HK USA |\n| 19 | and Mei Guo on its behalf wanted Justice Ostrager to find |\n| 20 | more than anything that HK USA and not the debtor own the |\n| 21 | yacht. |\n| 22 | And the best in response to this that the counter |\n| 23 | defendants have been able to come up with is that somehow |\n| 24 | there was not an alignment of interest because the debtor, |\n| 25 | like he apparently always does, decided before Justice |\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 22 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 22 Ostrager to assert his Fifth Amendment rights when he testified, as opposed to providing substantive answers. And that, Your Honor, is -- it's entirely beside the point, because it does not change the fact that the debtor's interest in that litigation, which he argued -- regardless of his testimony -- which he argued through\n\n counsel vociferously for was that HK USA owned the yacht. and through HK USA his daughter.\n\n And this is -- if you look at Rebuttal Exhibit 2 to my declaration -- and again, this should not be subject to any controversy because it's a very clear pleading that they filed, or that the debtor filed on their side in the litigation, where in his post-trial briefing after the contempt hearing, the debtor argued that -- and he argued strenuously throughout the entire ten to 20 pages of his post-trial briefing that HK USA and Mei Guo owned the Lady May.\n\n If you look at -- again, this is Exhibit 2 to my rebuttal declaration, if you look the preliminary statement of what the debtor filed in post-hearing briefing, it's like a two-page preliminary statement that does nothing other than argue he shouldn't be held in contempt of court because his daughter owns the yacht and there's no evidence to the contrary.\n\nIt's basically a recap of the exact same arguments\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 23 of\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
23 |\n|---|--------------------------------------------------------------|\n| 1 | these counter-defendants have made before this court.
And |\n| 2 | the point, Your Honor, is that the idea that the debtor did |\n| 3 | not have the same interest and did not advocate for the same |\n| 4 | interest as the counter-defendants because he took the Fifth |\n| 5 | is just totally wrong. |\n\n In addition to submitting this briefing in which he clearly argued the issue, he had the counter-defendant call witnesses, including Mei Guo, and other individuals who had roles with respect to management and operation of the yacht come to testify. So he made his case and he advanced his interest every way he could. The fact that he took the Fifth does not change that. It does not change that there's privity.\n\n So I think it's clear that the first prong of privity is established but alternatively, the record is also clear in this case that the counter-defendant actively participated in the litigation before Justice Ostrager.\n\n And I'll start with -- and this now goes to page 7 of the slides and I had promised the court that I would get to this -- I had mentioned this affirmation earlier and I promised the court that I would get back to it, but this is the July, 2021 affirmation that Attorney Vartan, on behalf of HK USA, filed in response to PAX's filing a contempt motion.\n\nIn this affirmation Attorney Vartan is essentially\n\n| Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 24 of |\n|---------------|----------|----------------|---------------------------|------------|\n| 103 | | | | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 24 submitting a brief arguing the issue of ownership. If this isn't clear evidence of participation actively in that litigation, I don't know what would be.\n\n As the quotes show, and these are just some snippets from the multi-page affirmation, but as it starts out, \"While HK International,\" in this case HK International refers to HK USA, \"is not a party to this action, it is the owner of the yacht, the Lady May, whose movement is asserted to be the basis of the final order of the contempt motion.\"\n\n And he goes on and he says \"I will address the ownership as shown by documentary evidence of the motor vessel, the Lady May, the movement of which is the subject of the final order of contempt -- the final order of contempt motion. Then I will review documents concerning the formation, existence, separate corporate identity and independent ownership of HK International.\"\n\n He goes on through the course of the next 16 paragraphs to layout all these documents and to make his argument.\n\n Then in paragraph 21 he says, \"Based on the registration certificate, the certificate of formation and the LLC agreement, it is clear that HK International is the sole\" -- again, it's HK USA -- \"is the sole owner of the Lady May since April, 2020 and Ms. Guo is the sole member of HK USA.\"\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 25 of\n\n| | 103 |\n|----|-------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
25 |\n| 1 | He again concludes a couple of paragraphs later, |\n| 2 | \"Accordingly, based on everything I've said in my |\n| 3 | affirmation, HK USA respectfully submits that the foregoing |\n| 4 | documents demonstrate A, that the yacht, the Lady May, is |\n| 5 | owned by HK USA and B, that HK USA is in turn one hundred |\n| 6 | percent owned by Ms. Guo.\" |\n| 7 | That, Your Honor, is one example of clear, active |\n| 8 | participation by the counter-defendants through their |\n| 9 | counsel in the very issue that Ostrager ended up deciding. |\n| 10 | Their participation continued.
At the February |\n| 11 | 2nd hearing HK USA and its counsel, and this is the next |\n| 12 | slide on the deck, participated extensively in the trial on |\n| 13 | the merits. |\n| 14 | In advance of the trial, pursuant to an order of |\n| 15 | Justice Ostrager, Mei Guo submitted an affidavit which |\n| 16 | served as her direct testimony.
They also submitted |\n| 17 | affidavits from three other witnesses, including a captain |\n\n and other individuals who had roles in managing and operating the Lady May.\n\n On the slide deck I've included some excerpts from Mei Guo's declaration. Again, she had every opportunity, every motivation to litigate the ownership issue, which is clear based on her statements. She said in paragraph 2 I am the owner of the yacht, the Lady May. I have been the owner of the Lady May since and/or around June, 2017.\n\n### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 26 of\n\n| 103 | | | | | |\n|-----|--------------------------------------------------------------|--|--|--|--|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
26 | | | | |\n| 1 | A few paragraphs later, at the time I escaped from | | | | |\n| 2 | the CCP's brutality -- and, by the way, these arguments are | | | | |\n| 3 | going to sound very familiar to the court because they're | | | | |\n| 4 | the exact same arguments we've heard in this adversary | | | | |\n| 5 | proceeding, the Lady May was owned by HK USA -- was owned by | | | | |\n| 6 | HK International, and the sole member of HK International | | | | |\n| 7 | Natashia Qu.
And she said I understand that Ms. Qu was a | | | | |\n| 8 | trusted business partner of my brother's, as well as my | | | | |\n| 9 | uncles and cousins.
The same argument she's made here. | | | | |\n| 10 | Paragraph 9, however, from the time of its | | | | |\n| 11 | purchase the Lady May was always intended to be my boat, | | | | |\n| 12 | given my love of the ocean.
Indeed it bears my name. | | | | |\n| 13 | In June, 2017, when I was safely in the United | | | | |\n| 14 | States, ownership of the Lady May was transferred to me. | | | | |\n| 15 | These are just some snippets from her declaration but, Your | | | | |\n| 16 | Honor, this is exactly active participation. | | | | |\n| 17 | In addition to that, as the transcript that's part | | | | |\n| 18 | of my declaration shows, Attorney Vartan, not only did he | | | | |\n| 19 | put Mei Guo on the stand for cross examination on that | | | | |\n| 20 | declaration at the hearing, he put the three other witnesses | | | | |\n| 21 | that were called in support of the debtor's position on the | | | | |\n| 22 | stand as well. He actively participated in the hearing. | | | | |\n\n Now some of the counter-arguments in the papers filed last night, I want to address a couple of those. The counter-defendants pick out certain things\n\n| Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 27 of |\n|---------------|----------|----------------|---------------------------|------------|\n|---------------|----------|----------------|---------------------------|------------|\n\n| 103 | | | | | | |\n|-----|--------------------------------------------------------------|--|--|--|--|--|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
27 | | | | | |\n| 1 | that they say the counter-defendants, or that HK USA and Mei | | | | | |\n| 2 | Guo didn't have the opportunity to do and, therefore, they | | | | | |\n| 3 | didn't actively participate or have the full and fair | | | | | |\n| 4 | opportunity to litigate before Justice Ostrager.
They say | | | | | |\n| 5 | they didn't take discovery. | | | | | |\n\n First of all, I want to say before addressing this argument and the other particular things they say they weren't able to do, there is no hard and fast test. There's no case law saying that you have to be able to take discovery in order for collateral estoppel to apply.\n\n As I said before, it is a flexible standard that looks at all the facts and circumstances and determines whether it would be fair to allow collateral estoppel to apply.\n\n I would submit that the only thing that would be unfair would be to not allow it to apply and to give these counter-defendants, who already litigated this issue, a second bite at the apple and waste more time and more resources of the trustee and of this court and of the creditors of the debtor's estate.\n\n But on these particular issues they say that the debtor did not get the chance to -- or the counter-defendants did not get the chance to take discovery.\n\n Your Honor, what discovery could they possibly have needed? And I also don't know that it's not true that\n\n| Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 28 of |\n|---------------|----------|----------------|---------------------------|------------|\n|---------------|----------|----------------|---------------------------|------------|\n\n| | 103 | |\n|---|-------------------------------------------------------------|----|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023 | 28 |\n| 1 | they didn't take informal discovery.
They were trying to | |\n| 2 | prove -- the counter-defendants were trying to prove that | |\n| 3 | they owned the Lady May.
To the extend that they needed | |\n| 4 | evidence to present in support of that position it is | |\n| 5 | inherently and necessarily evidence that they own and | |\n| 6 | control.
It's the argument that they own it. | |\n\n And they, in fact, obviously had access to that information because they put Ms. Guo on the stand to testify as to all the reasons why she thinks she owns the Lady May. They put these other witnesses who they had access to, people who had management and operational responsibilities with the yacht on the stand. They had access to them. They had everything they needed necessarily to litigate their case.\n\n They also suggest that they were not able to submit their own briefing. But as I just showed, they effectively did that in multiple ways. Attorney Vartan's information serves a declaration, or serves as a brief.\n\n Also, here, the debtor, who they're a hundred percent aligned in interest with, as I said before, submitted his own briefing multiple times, including post- trial briefing where he argued the ownership issue strenuously and made the exact same arguments that the counter-defendants wanted him to make and that they're making here. So, again, that's another red herring.\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 29 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 29 They also say, and this one's sort of more remarkable than the others, that somehow they didn't have a full and fair opportunity to litigate because there was no redirect examination of witnesses. We have no authority that suggests that the lack of redirect would somehow mean that they didn't have an opportunity to litigate. That's just not true, number one. Number two, in support of that they cite to Exhibit F to the Vartan declaration. This is an order prior to the February 2nd hearing from Justice Ostrager setting out how the hearing would work procedurally. And it says absolutely nothing of the sort that redirect was prohibited. And they said it was by agreement of the parties and the court that they were not involved in that redirect -- THE COURT: What exhibit are you referring to right now? I'm not sure which one you are referring to? MR. BASSETT: This is Exhibit F to the Vartan declaration in support of their opposition to the motion for summary judgment. THE COURT: Okay. So in the New York case, it's Exhibit -- MR. BASSETT: No, no. In this case. Exhibit -- THE COURT: In this case -- MR. BASSETT: His --\n\n| Case 22-50073
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30 | | | | |\n| THE COURT:
Oh, in their summary judgment -- okay. | | | | |\n| MR. BASSETT:
Yes. Sorry. | | | | |\n| THE COURT:
Sorry.
That's why I'm asking. I want | | | | |\n| to make sure I'm following you. | | | | |\n| MR. BASSETT:
Understood. | | | | |\n| So in Exhibit F -- so what they say in their | | | | |\n| papers is that the parties agreed, along with Justice | | | | |\n| Ostrager, there would be no direct.
Again, this is -- I'm | | | | |\n| spending too much time on this because I don't think that | | | | |\n| really matters anyway. | | | | |\n| But I just want to point out that's factually | | | | |\n| incorrect.
They cite to this Exhibit F, which is the | | | | |\n| pretrial order. It says nothing about there being no | | | | |\n| redirect. | | | | |\n| THE COURT:
So it's Exhibit F to ECF 160. | | | | |\n| MR. BASSETT:
I think that's the right ECF | | | | |\n| reference. | | | | |\n| THE COURT:
It is. | | | | |\n| MR. BASSETT:
It says nothing of the sort. | | | | |\n| THE COURT:
161.
I'm sorry. I apologize.
At | | | | |\n| least from what I'm looking at it's 161. | | | | |\n| MR. BASSETT:
No problem, Your Honor.
Thank you. | | | | |\n| All that order says is that direct testimony will | | | | |\n| be by affidavit and then witnesses will be presented for | | | | |\n| cross. | | | | |\n| | | | | |\n\n| | Case 22-50073
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31 |\n| 1 | If you look at the transcript, which is at Exhibit |\n| 2 | 16 to my declaration, in fact, what happened at the February |\n| 3 | 2nd hearing is that PAX tried to redirect -- tried to |\n| 4 | conduct redirect examination of one of its own witnesses. |\n| 5 | THE COURT:
All right.
Let me look at yours so |\n| 6 | I'm following you.
Okay? |\n| 7 | MR. BASSETT:
Sure. |\n| 8 | THE COURT:
So we're talking -- you're now saying |\n| 9 | but -- not look at my declaration and look at what Exhibit? |\n| 10 | MR. BASSETT:
Exhibit 16, Your Honor. |\n| 11 | THE COURT:
Okay.
Hold on a second. |\n| 12 | So your declaration is 150 in this adversary. So |\n| 13 | just give me a moment. |\n| 14 | MR. BASSETT:
No problem at all. |\n| 15 | (Pause.) |\n| 16 | THE COURT:
All right. So where in Exhibit 16 do |\n| 17 | you want me to look? |\n| 18 | MR. BASSETT:
It's at page 32 and, again, I fear |\n| 19 | that I may be taking too long to make a point that I don't |\n| 20 | think is absolutely critical, but I'll still finish the -- |\n| 21 | THE COURT:
Page 32. |\n| 22 | MR. BASSETT:
I'll still close the loop.
Yes, |\n| 23 | it's Exhibit 16 at 32. |\n| 24 | THE COURT:
Okay.
Give me a moment, please. |\n| 25 | (Pause.) |\n| | |\n\n| | Case 22-50073
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32 |\n| 1 | THE COURT:
Okay. I am on page 32. |\n| 2 | MR. BASSETT:
So the point, Your Honor, is that |\n| 3 | contrary to what the counter-defendants had said, there was |\n| 4 | no agreement among counsel.
And when I say agreement among |\n| 5 | counsel, their point is that they say that the debtor and |\n| 6 | PAX agreed without their involvement that there would be no |\n| 7 | redirect and, therefore, they were prejudiced. |\n| 8 | But that was not the case at all.
What happened |\n| 9 | is on page 32 PAX tried to do direct of its own witness and |\n| 10 | Justice Ostrager said he's not going to allow redirect. |\n| 11 | So it was just Justice Ostrager deciding how to |\n| 12 | conduct trials before his court.
He obviously is free to |\n| 13 | determine what all parties may and may not do.
It was not |\n| 14 | some agreement of the parties that was designed to prejudice |\n| 15 | the counter-defendants and their rights. And their assertion |\n| 16 | to the contrary is just wrong. |\n| 17 | The next issue I want to address -- well, |\n| 18 | actually, before moving on, and I think I'm close to |\n| 19 | concluding my opening remarks, Your Honor, is I just want to |\n| 20 | emphasize again that this is a particularly strong case for |\n| 21 | satisfaction of the full and fair opportunity requirement of |\n| 22 | the collateral estoppel analysis because we're not just |\n| 23 | relying on one or the other of the privity and active |\n| 24 | participation prongs.
We have both of them. |\n| 25 | And in looking at all the facts and circumstances, |\n\n| Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 33 of |\n|---------------|----------|----------------|---------------------------|------------|\n|---------------|----------|----------------|---------------------------|------------|\n\n| | 103 |\n|---|---------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
33 |\n| 1 | even if the court were to think well, maybe they could have |\n| 2 | had more participation rights, or maybe there could have |\n| 3 | been greater privity, here the argument on both sides is |\n| 4 | bolstered by the fact that there's both.
So it wasn't just |\n| 5 | that they were in privity.
They also actively participated |\n\nin the litigation.\n\n And I'll give the court a case cite that I think is helpful on this. It's the *Allegra Credit vs. Tin Chu* case, 29 A.D. 3d 718. This is a New York Second Department Decision from 2006.\n\n THE COURT: Just give me the cite one more time, please.\n\n MR. BASSETT: Sure. 29 A.D. 3d 718. THE COURT: Okay. Go ahead. Thank you.\n\n MR. BASSETT: And in this case there was a criminal prosecution brought against a son who had forged a deed of transfer of his father's house to himself and then he procured a fraudulent mortgage after he had forged the transfer of the deed. And he was convicted.\n\n The father in a subsequent litigation tried to prevent foreclosure on the property on the grounds that it had been transferred to his son.\n\n And the court held that because of their close relationship and the fact that they both had the exact same interest in arguing that the forgery did not occur, that the\n\n| | Case 22-50073
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34 |\n| 1 | transfer deed was that he was bound even though in that case |\n| 2 | the father did not participate at all, did not appear, did |\n| 3 | not say anything in the prior criminal proceeding, but yet |\n| 4 | collateral estoppel applied. |\n| 5 | A couple of more issues that I think can be |\n| 6 | dispensed with relatively quickly and then I'll reserve the |\n| 7 | balance of my time to respond to arguments of counsel. |\n| 8 | The first issue is -- this has come up already. |\n| 9 | The court actually alluded to it in a past hearing and this |\n| 10 | is the issue of whether an appeal or appellate rights |\n| 11 | somehow factor into the collateral estoppel analysis in New |\n| 12 | York and whether the pendency of an appeal would prevent |\n| 13 | this court from finding that the counter-defendants are |\n| 14 | estopped by Justice Ostrager's ruling. |\n| 15 | In their brief -- I don't know how they say this |\n| 16 | but they say that we rely on one old case from the late |\n| 17 | 1970's in support of this proposition that in New York law |\n| 18 | the pendency of an appeal does not prevent collateral |\n| 19 | estoppel and that they think the law has somehow changed. |\n| 20 | That's just not the case. |\n| 21 | We also cite to a 2004 decision, the Bridgeview |\n| 22 | Garden Apartments case cited in our paper in which the court |\n| 23 | -- the New York Court said the rule in New York is clear |\n| 24 | that \"the mere pendency of an appeal does not prevent the |\n| 25 | use of the challenged judgment as the basis of collaterally |\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 35 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 35 estopping a party to that judgment in a second proceeding.\" Another case is a Second Circuit case from 2003. This is the *Scherer v. Equitable Life Assurance Society of the United States* case. The citation is 347 F.3d 394.\n\n The Second Circuit in that case said even though the appeal was still pending when the suit was brought, the district to treat the New York State judgment as final for res judicata purposes.\n\n In New York the rule is clear. The dependency of an appeal does not effect the application of collateral estoppel.\n\n To the extent that the counter-defendants cite other cases purporting to go in a different direction, those cases are inconsistent with the prevailing law and they also, as far as I can tell, all involve criminal cases that dealt uniquely with the situation that occurs in a criminal trial where somebody is trying to use estoppel for criminal liability.\n\n Also, Your Honor, the cases that they cite and rely on dealt with situations where no party had the opportunity for appellate review.\n\n But as we've already been over extensively, the debtor and HK USA and Mei Guo were a hundred percent aligned in interest before Justice Ostrager. The debtor, in fact has appealed and exercised his appellate rights to appeal\n\n| | Case 22-50073
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36 |\n| 1 | Justice Ostrager's decision. |\n| 2 | So this isn't a situation where there was no |\n| 3 | opportunity for pursuit of appellate rights. |\n| 4 | The last issue, Your Honor, that I'll conclude |\n| 5 | with and I think this will be very brief is the last |\n| 6 | argument that they make in their papers where they say that |\n| 7 | the court can't grant summary judgment because there are |\n| 8 | issues with I guess the competency of the evidence that the |\n| 9 | trustee is relying upon.
They say it's hearsay. |\n| 10 | Your Honor, I think it's obvious that that's not |\n| 11 | the case based on the nature of our argument.
We're arguing |\n| 12 | collateral estoppel.
So we're putting Justice Ostrager's |\n| 13 | decision before the court.
We're putting the appellate |\n| 14 | division's decision before the court.
We're putting other |\n| 15 | documents before the court, not for the purpose of proving |\n| 16 | the truth of the matter asserted in factual findings. |\n| 17 | We're putting them before the court to show the |\n| 18 | procedural history of what happened before the New York |\n| 19 | Court and the language of the decisions where the court |\n| 20 | described what it was finding. |\n| 21 | The fact that the counter-defendants through their |\n| 22 | counsel participated in the proceedings before Justice |\n| 23 | Ostrager, that's all clear based on the face of the |\n| 24 | documents.
It's not -- there's not a hearsay issue. |\n| 25 | There's no issue of the competency of the evidence before |\n\n| | Case 22-50073
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37 |\n| 1 | the court.
I think that argument was put last in their |\n| 2 | brief for a reason. |\n| 3 | So, Your Honor, I think those are my opening |\n| 4 | remarks in support of why we believe the court should grant |\n| 5 | the motion for partial summary judgment.
Obviously, I'll |\n| 6 | reserve time to respond to any arguments that counsel may |\n| 7 | have.
Thank you. |\n| 8 | THE COURT:
Thank you. |\n| 9 | Counsel? |\n| 10 | MS. WERNICK:
Thank you, Your Honor. |\n| 11 | And before I begin I would be remiss not to |\n| 12 | reflect on how we came to be here today, which is in large |\n| 13 | part as a result of the motion to expedite this hearing |\n| 14 | filed just last week in connection with the motion for |\n| 15 | summary judgment which HK USA objected to and continues to |\n| 16 | remain of concern in the course of responding to such an |\n| 17 | important motion relating to a \\$37 million asset all in the |\n| 18 | course of a week. |\n| 19 | And so while we understand the concerns the |\n| 20 | trustee has raised with respect to insuring, and we have |\n| 21 | concerns as well, there's an ongoing objection to having a |\n| 22 | hearing on such short notice on what is a dispositive issue |\n| 23 | in this case. |\n| 24 | THE COURT:
Okay.
But that -- your objection's |\n| 25 | been overruled. |\n| | |\n\n| | Case 22-50073
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38 |\n| 1 | MS. WERNICK:
I understand. |\n| 2 | THE COURT:
There's a hearing today right now. |\n| 3 | MS. WERNICK:
Right.
And I understand. |\n| 4 | THE COURT:
So now is your time to make your |\n| 5 | arguments, okay.
And you brought the issue before the court |\n| 6 | by telling the court that you weren't going to -- that there |\n| 7 | was no -- that there was not going to be any insurance on |\n| 8 | the boat, on the yacht, after tomorrow. |\n| 9 | So while I understand your comments, I think that |\n| 10 | to make the record clear -- you can obviously make any |\n| 11 | argument that you think is appropriate, but if there isn't |\n| 12 | any insurance on the yacht, then I would think you would be |\n| 13 | opening up your own client to causes of action against it. |\n| 14 | So go ahead.
Proceed. |\n| 15 | MS. WERNICK:
I understand, Your Honor. |\n| 16 | And so from an initial place I guess I'd like to |\n| 17 | begin in response to the notion raised by the trustee that |\n| 18 | somehow HK USA should not be permitted to relitigate issues |\n| 19 | that were previously decided by the New York court. |\n| 20 | And I would take issue with that contention on two |\n| 21 | fronts, both with the idea that these issues were fully |\n| 22 | litigated and second, with the idea that HK USA was not a |\n| 23 | party to the underlying New York action, had an opportunity |\n| 24 | to litigate these issues at all. |\n| 25 | The New York proceeding involved the contempt |\n| | |\n\n| | Case 22-50073
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39 |\n| 1 | hearing that last just a few hours on Zoom. It's not a |\n| 2 | sufficient record to strip HK USA from its ownership of a |\n| 3 | \\$37 million asset. |\n| 4 | I agree with counsel on the standard for |\n| 5 | collateral estoppel that there must be an identity of issues |\n| 6 | that have been necessarily decided in the prior action and |\n| 7 | that's decisive of the present action, and that there must |\n| 8 | be a full and fair opportunity to contest the decision |\n| 9 | that's now said to be controlling. |\n| 10 | On both of these issues we respect that the |\n| 11 | trustee has not made its showing.
And because estoppel |\n| 12 | places the termination of litigation ahead of insuring the |\n| 13 | correct result, it's for that very reason why courts are |\n| 14 | asked to narrowly consider the issue. |\n| 15 | So to rewind, as counsel did, as a starting place, |\n| 16 | the New York action involved the breach of contract between |\n| 17 | the debtor and PAX. It's undisputed that HK USA and Ms. Guo |\n| 18 | were not parties to that litigation. |\n| 19 | After summary judgment was entered in favor of PAX |\n| 20 | and in the context of prejudgment enforcement proceedings, |\n| 21 | under CPLR 5229 the New York court entered a contempt |\n| 22 | decision against the debtor. |\n| 23 | That decision, which considers the issue of |\n| 24 | contempt, cannot now collaterally estop HK USA from arguing |\n| 25 | or from establishing that it owns the Lady May. |\n| | |\n\n### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 40 of\n\n| | 103 |\n|----|--------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
40 |\n| 1 | And so that's where I would like to begin because |\n| 2 | it is clear that the New York proceedings involved an issue |\n| 3 | of contempt.
And on contempt what the court was asked to |\n| 4 | consider was whether there was a lawful order of the court, |\n| 5 | whether it appeared with reasonable certainty that the order |\n| 6 | had been disobeyed and that the parties to be held in |\n| 7 | contempt must have had knowledge of the court's order and |\n| 8 | finally, prejudiced to the right of a party to the |\n| 9 | litigation that must be demonstrated. |\n| 10 | None of those factors that were before the court |\n| 11 | in contempt context raised questions regarding full and |\n| 12 | final rights with respect to the Lady May. |\n| 13 | And it's important to have a full understanding in |\n| 14 | the contest of the CPLR in this motion because it's without |\n| 15 | question that the CPLR does address and has a procedure in |\n| 16 | place for the turnover of assets that are in the hands of |\n| 17 | another, which is CPLR 5225. |\n| 18 | And in such a proceeding the judgment creditor can |\n| 19 | initiate an action against a garnishee, in which case the |\n| 20 | garnishee, or the party in possession of the asset would be |\n| 21 | a party to that proceeding on notice and being given an |\n\nopportunity to litigate the issue.\n\n That's not what happened here. The contempt proceeding addressed solely the issue of whether the debtor could be found to be in contempt of the court's order and\n\n| | Case 22-50073
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41 |\n| 1 | did not -- certainly did not make a final determination, as |\n| 2 | counsel now suggests, with respect to the Lady May. |\n| 3 | And, again, it's clear that the New York court |\n| 4 | recognized this.
The New York court explains that it was |\n| 5 | called on to determine whether PAX had carried its burden to |\n| 6 | hold the debtor in civil contempt. |\n| 7 | The question of ownership, and certainly a full |\n| 8 | and final determination of ownership of the Lady May, was |\n| 9 | not the issue that was before the court. |\n| 10 | The court inquired as to whether PAX could |\n| 11 | potentially ultimately levy on the Lady May, but that would |\n| 12 | have required that step two proceeding under the CPLR, which |\n| 13 | unequivocally did not happen. |\n| 14 | And so when counsel suggests that reference to |\n| 15 | case law surrounding interim or preliminary relief is |\n| 16 | improper, I would have to push back and really take issue |\n| 17 | with that because that is all that the finding was in the |\n| 18 | court's February 9th order. |\n| 19 | In order for there to have been a full disposition |\n| 20 | and turnover the Lady May, there would necessarily have had |\n| 21 | to have been a further proceeding in the New York court, |\n| 22 | which did not happen. |\n| 23 | And because a final finding as to the ownership of |\n| 24 | the Lady Mae was not necessary for the court to issue the |\n| 25 | final contempt order, any findings around ownership cannot |\n| | |\n\n| | Case 22-50073
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42 |\n| 1 | be given a preclusive effect. |\n| 2 | And I would refer to the court to cases cite in |\n| 3 | our brief, including Little Robinson Shoemaker vs. |\n| 4 | Shoemaker, 309 A.D. 2d 688, which explains a collateral |\n| 5 | estoppel did not apply or the relevant issue was not the |\n| 6 | focus of the prior hearing and was not necessarily decided. |\n| 7 | THE COURT:
Just hold on one second again. Let me |\n| 8 | just have that cite, please. |\n| 9 | MS. WERNICK:
Sure.
309 A.D. 2d 688, a First |\n| 10 | Department decision out of New York. |\n| 11 | THE COURT:
And what year is that? |\n| 12 | MS. WERNICK:
2003. |\n| 13 | THE COURT:
Okay.
Thank you. |\n| 14 | Go ahead. I'm sorry. I just wanted to make sure I |\n| 15 | get the cite properly.
I want to hear you.
Because, as you |\n| 16 | know, we only have audio so it's not as if I can go back and |\n| 17 | read what you've said, okay? |\n| 18 | MS. WERNICK:
And so to be clear, the court in |\n| 19 | issuing the contempt decision in New York did not find that |\n| 20 | the Lady May was beneficially owned and controlled by the |\n| 21 | debtor and not by HK USA or Ms. Guo. |\n| 22 | All that the court found was that the debtor holds |\n| 23 | a beneficial interest in and could control the Lady May. |\n| 24 | The court did find that the debtor holds the only beneficial |\n| 25 | interest in the yacht or that HK USA or Ms. Guo held no |\n| | |\n\n| | Case 22-50073
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43 |\n| 1 | interest in the yacht. |\n| 2 | Again, those are all questions would be |\n| 3 | potentially considered by the court in a turnover proceeding |\n| 4 | that did not happen. |\n| 5 | That being the case, there's certainly no final |\n| 6 | determination over the ownership of the yacht arising out of |\n| 7 | the contempt decision that could be given a preclusive |\n| 8 | effect. |\n| 9 | With respect to the much hyped participation in |\n| 10 | connection with the New York action I think, again, |\n| 11 | revisiting the procedural history is important. |\n| 12 | On January 14th, 2022 in the exhibit that was |\n| 13 | referenced in the Vartan declaration as Exhibit 6 or -- I |\n| 14 | think we used letters.
The appropriate corresponding |\n| 15 | designation.
The court issued an order on January 14 |\n| 16 | setting up a schedule for a hearing on the issue of |\n| 17 | contempt. |\n| 18 | Notably in connection with the schedule it |\n| 19 | directed the parties to the litigation to submit affidavits |\n| 20 | in connection with the proceedings by January 28 and |\n| 21 | provided the parties to the litigation with an opportunity |\n| 22 | to submit briefing. |\n| 23 | Now if you look at the New York court docket that |\n| 24 | was appended to the declaration filed yesterday, it's |\n| 25 | important to note that the declarations that were submitted |\n| | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 44 in connection with this hearing were not filed by HK USA, were not filed by my office, but were filed by debtor's counsel, because the witnesses were witnesses, Ms. Guo included, that were being put on by debtor's counsel in connection with the hearing. And that's all that they were. And so it's really a misnomer to characterize Mr. Vartan as having called four witnesses in connection with the hearing. What happened in practice and in reality, he participated in the hearing to defend his clients that were called as witnesses by other parties. Counsel for HK USA did not have an opportunity to present opening statements, as did counsel to the parties, counsel for HK USA did not have an opportunity to cross examine plaintiff's witnesses that were presented during the course of the hearing. When the court called into conference counsel for the parties during the course of the hearings it was to the exclusion of Mr. Vartan, who was not included in those conversations. And the reason for this all is clear. It's because HK USA and Ms. Guo were not parties to the underlying action. They were merely being called as witnesses in connection with this hearing. And that's significantly important as well, going Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 44 of\n\n| Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 45 of |\n|---------------|----------|----------------|---------------------------|------------|\n|---------------|----------|----------------|---------------------------|------------|\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 45 back to the notion that HK USA and Ms. Guo did not move to intervene in the underlying New York action, nor would they have had any reason to.\n\n They appeared in connection with the contempt hearing, and that was the sole issue that was before court. If there was an issue with respect to actual -- and a final determination of ownership, they knew that the CLPR provided for another proceeding where that issue would be determined. This wasn't their forum for raising issues with respect to a final determination of ownership. They would have another day to do that. The issue that was before the New York court had to do with contempt.\n\n And so that being said, HK USA, Ms. Guo, did not have an opportunity to call their own witnesses. The debtor called witnesses in connection with the hearing. They didn't have an opportunity to conduct discovery prior to the hearing and they didn't have the opportunity to cross examine witnesses that were brought by plaintiffs.\n\n And with respect to the notion of appellate rights raised by counsel, again, we would refer the court to *Bland vs. New York*, which is 263 F.Supp. 2d 526, which is an Eastern District of New York case from 2003, which really highlights the importance and the necessary requirement of appellate review in the context of preclusion. And it's -- THE COURT: Wasn't that case though -- that case\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 46 of\n\n| | 103 | | | | |\n|---|----------------------------------------------------------|----|--|--|--|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023 | 46 | | | |\n| 1 | that you cited, Bland vs. New York, wasn't that because | | | | |\n| 2 | there was -- the prior proceeding was an administrative | | | | |\n| 3 | proceeding and not a proceeding at law and, therefore, | | | | |\n| 4 | collateral estoppel didn't apply because the court found | | | | |\n| 5 | that the prior proceeding, in which there were findings | | | | |\n| 6 | made, was an administrative proceeding and not a legal | | | | |\n| 7 | proceeding?
Isn't that correct? | | | | |\n| 8 | MS. WERNICK:
Well, the importance is that there | | | | |\n\n needs to be an opportunity for a review of the underlying proceeding in order to make sure --\n\n THE COURT: That's not what that case says. That case says that there wasn't collateral estoppel because the issues were -- regarding discipline by the office of the court's administration because the judge had sexually harassed his secretary.\n\n So that case -- I looked at that case. And so when you say with respect to appellate review, you rely heavily on that case. I'm not persuaded by that case. So do you have another case?\n\n MS. WERNICK: Sure. I'd also point Your Honor to *Avail vs. Ryder Systems*, which is out of the Second Circuit, which, again, as we noted in our brief, stands for the proposition that a party can't be considered to have full and fair review of an opportunity to litigate an issue of there is an inability to obtain appellate review.\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 47 And so here -- THE COURT: That, again, involved an arbitration, not a legal proceeding in which a court made findings and issued a ruling which was subject to appeal. MS. WERNICK: But there the argument is twofold. One, Ms. Guo, as a non-party to the New York action, did not have an opportunity in her own right to appeal. And here in this case, the notion of appellate review, or the availability of appellate review, again, it appears to be a misnomer as the trustee in its papers sort of flouts the idea that they can do what they will with the appeal. But with respect to claims preclusion, there needs to be some assuredness that the underlying decision was rightly and fairly decided, which is not the case without the availability of -- an opportunity to review the matter. THE COURT: Okay. MS. WERNICK: And then to also touch upon the notion of a privity relationship between HK USA and the debtor in the New York action is again one that we would submit the trustee cannot show. So first with respect to the notion that their interests were aligned, we would, again, refer the court back to the notion that the proceeding in New York was a Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 47 of\n\n| | Case 22-50073
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48 |\n| 1 | contempt proceeding. |\n| 2 | The debtor's interest in that proceeding was to |\n| 3 | ensure he didn't go to jail.
On the other hand, HK USA and |\n| 4 | Ms. Guo have a strong interest in securing their property |\n| 5 | which, again, they had every expectation to believe that |\n| 6 | they would have an opportunity to do that in the event there |\n| 7 | was a turnover proceeding in which they would actually be |\n| 8 | entitled, upon their request, to a jury trial on that issue. |\n| 9 | THE COURT:
But that doesn't address the alignment |\n| 10 | of interest.
You're talking about different issues and I |\n| 11 | understand that argument.
But what about the alignment of |\n| 12 | interests.
Ms. Guo's interests weren't aligned with her |\n| 13 | father's? |\n| 14 | MS. WERNICK:
They were not the same interests |\n| 15 | certainly, right? |\n| 16 | THE COURT:
Well, they have to be aligned.
That's |\n| 17 | the status, right?
That's the test.
So how were they not |\n| 18 | aligned? |\n| 19 | MS. WERNICK:
Because the interest that the |\n| 20 | debtor is presenting in the New York action is solely for |\n| 21 | the purpose of avoiding either civil contempt or really |\n| 22 | criminal contempt to the extent the judge was going to send |\n| 23 | him to jail for not complying with the court's orders. |\n| 24 | That's his focus, right?
His focus is pleading |\n| 25 | the Fifth, so he doesn't have to testify, and ensuring he |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 49 doesn't go jail. What -- THE COURT: But didn't he say in that case the -- didn't he say that the boat was owned by HK? MS. WERNICK: Yeah, certainly. THE COURT: And didn't HK argue the same thing? MS. WERNICK: Yes. However -- THE COURT: So how are their interests not aligned then? MS. WERNICK: Because to the extent that if HK were a party to that litigation or had an opportunity to present its case as a party to the litigation, they could have certainly gone much further and presented additional -- THE COURT: Well, that's a choice HK made. MS. WERNICK: No, but they didn't make it because they were -- THE COURT: Sure, they did. They could have intervened. They could have done 17 different things. MS. WERNICK: No, because they had an understanding and a right -- a correct understanding that there would be no final determination with respect to ownership arising out of that proceeding. There couldn't be. The CPLR provides otherwise. And so why would they intervene in an action that was relating to contempt when there's a whole other procedure to address what they really care about -- Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 49 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 50 THE COURT: Well, they did intervene in that they argued that the asset was attempting to seize upon, right, as part of the judgment, was theirs. So they did intervene. MS. WERNICK: Well, they were presented as witnesses, respectfully -- THE COURT: But they didn't have to appear as witnesses. Did anybody subpoena them? MS. WERNICK: But as witnesses -- THE COURT: Wait a minute. Answer my question. MS. WERNICK: Yeah. THE COURT: Did anybody subpoena them? MS. WERNICK: I don't have factual knowledge as to that issue. THE COURT: Okay. Well, that's relevant, don't you think? And did Mr. Vartan -- nobody forced Mr. Vartan to file an affirmation in the New York case? MS. WERNICK: No, but it's not being filed -- nothing was filed on behalf of HK USA in its capacity as a litigant, right? So they're able to provide information in the capacity as witnesses -- THE COURT: Well, you're in -- HK's interest was the same and Mr. Kwok's at that time. You didn't want PAX to get the yacht, right? That was the whole thing. You didn't want PAX to get the yacht. So when you say their interests aren't aligned, Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 50 of\n\n| | Case 22-50073
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51 |\n| 1 | I'm having trouble being persuaded by your argument. I |\n| 2 | understand your argument about two different issues, but I'm |\n| 3 | not sure I understand your argument about aligning the |\n| 4 | interest. |\n| 5 | There's nothing in the record before the court |\n| 6 | here that Mr. Vartan was obligated to do anything in the New |\n| 7 | York State Court.
And that choices were made by HK.
Your |\n| 8 | client is HK and Mei Guo.
You made a choice to file Mr. |\n| 9 | Vartan's affirmation.
For Ms. Guo to file her affidavit and |\n| 10 | to testify at that hearing. |\n| 11 | So I'm just telling you with regard to your issue |\n| 12 | about alignment of interest, I'm not -- you're not |\n| 13 | persuading me at the moment, number one.
Number two, the -- |\n| 14 | you know, your office and Zeisler all represent all three |\n| 15 | parties in this action.
In this case, in the bankruptcy |\n| 16 | case, Zeisler and Zeisler represents Mr. Kwok, Ms. Guo and |\n| 17 | HK. |\n| 18 | You've just joined recently.
I don't know -- I |\n| 19 | never -- wasn't quite sure why, but maybe the interest is -- |\n| 20 | the reason is to try to show that there isn't some alignment |\n| 21 | of interest, even though HK voluntarily submitted itself to |\n| 22 | the jurisdiction of this court and essentially -- not |\n| 23 | essentially.
And did file a complaint seeking to |\n| 24 | collaterally attack Justice Ostrager's determination that -- |\n| 25 | you want a declaratory judgment that your clients are the |\n\n| | Case 22-50073
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52 |\n| 1 | owners of the yacht. |\n| 2 | Justice Ostrager found that Mr. Kwok has a |\n| 3 | beneficial interest in and controls the yacht.
Do you agree |\n| 4 | with that? |\n| 5 | MS. WERNICK:
That is his words in the order. |\n| 6 | THE COURT:
Okay.
Then go ahead.
Keep going. |\n| 7 | MS. WERNICK:
So respectfully, Your Honor, and to |\n| 8 | address that point, the reason that we're here before this |\n| 9 | court and not in that separate CPLR proceeding that I |\n| 10 | referred to, is because the debtor filed for bankruptcy and |\n| 11 | the actions in New York were all stayed. |\n| 12 | So now this became the forum for addressing -- |\n| 13 | THE COURT:
Not necessarily.
Not necessarily at |\n| 14 | all.
It could have been addressed in a different forum. |\n| 15 | In fact, there was a motion pending from PAX to |\n| 16 | bring it back to the New York forum and you -- your clients |\n| 17 | came in and said, no, no.
Let's not do that.
We'll get the |\n| 18 | boat here.
We'll get the yacht here.
And we'll solve the |\n| 19 | relief from stay.
That's what your clients argued, not the |\n| 20 | debtor.
Not the debtor, but your clients argued that in |\n| 21 | this court. |\n| 22 | And you commenced this adversary proceeding.
Your |\n| 23 | clients.
And you -- your firm didn't become part of this |\n| 24 | until well after -- the adversary proceeding was filed in |\n| 25 | April of 2022.
And your firm got involved in January, I |\n| | |\n\n| | Case 22-50073
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53 |\n| 1 | believe, of this year. |\n| 2 | So you have to think about what's been said in |\n| 3 | pleadings filed by your client in this court -- clients, as |\n| 4 | well as in the court in New York. |\n| 5 | So you can -- I'm not being persuaded by your |\n| 6 | argument that there isn't an alignment of interest between |\n| 7 | Mr. Kwok, and Mei Guo, and HK International. |\n| 8 | MS. WERNICK:
Okay. |\n| 9 | THE COURT:
So go ahead. |\n| 10 | MS. WERNICK:
Yes, and I appreciate -- and then I |\n| 11 | would just repeat and reinforce our position, for the |\n| 12 | record, that because the debtor, Mr. Kwok, invoked his Fifth |\n| 13 | Amendment right and did not present a full defense in the |\n| 14 | New York action, his interests certainly were not in lock |\n| 15 | step with HK USA's -- again, the debtor was concerned with |\n| 16 | protecting his criminal interests and interests in avoiding |\n| 17 | contempt.
HK USA is interested in ensuring the preservation |\n| 18 | of its property in the yacht. |\n| 19 | And then, again, just to comment on the trustee's |\n| 20 | notion of the close relationship between the debtor and Ms. |\n| 21 | Guo. |\n| 22 | Again, I refer the court to the cases cited in our |\n| 23 | submission that make clear that the familial relationship |\n| 24 | between two parties is insufficient to establish privity for |\n| 25 | purposes of preclusion, and that's really all that the |\n| | |\n\n| | Case 22-50073
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54 |\n| 1 | trustee offers on that point is the notion that because the |\n| 2 | debtor and Ms. Guo have a father/daughter relationship, that |\n| 3 | that additionally bolsters their notion for privity. |\n| 4 | And, again, I would refer the court to the cases |\n| 5 | cited, in particularly the Willsey case vs. Strawway, which |\n| 6 | is -- |\n| 7 | THE COURT:
You can tell me that one again? |\n| 8 | MS. WERNICK:
Yes.
It's -- |\n| 9 | THE COURT:
Say the first name of it. I'm sorry -- |\n| 10 | MS. WERNICK:
Willsey. |\n| 11 | THE COURT:
W-O-O -- |\n| 12 | MS. WERNICK:
W-I-L-L-S-E-Y. |\n| 13 | THE COURT:
Okay. |\n| 14 | MS. WERNICK:
Versus Strawway, S-T-R-A-W-W-A-Y, |\n| 15 | which is a Supreme Court case available at 255 NYS 2d 224. |\n| 16 | And so that case the court refused to apply |\n| 17 | collateral estoppel against a daughter who was the driver of |\n| 18 | a father's automobile that was involved in the accident, |\n| 19 | even though the daughter had been a material witness in a |\n| 20 | prior lawsuit between the father and owner of the other |\n| 21 | automobile where the daughter's attorney had appeared and |\n| 22 | examined witnesses in the prior trial. |\n| 23 | And the court found that the daughter was not |\n| 24 | precluded from maintaining an action against the other |\n| 25 | driver because she was not a party to the prior lawsuit. |\n| | |\n\n# Ho Wan Kwok/HK USA v. Despins - March 27, 2023 55 And so different context but very similar set of facts, as we have here. Ms. Guo was a witness in the prior case in New York. She wasn't a party to the case. That's undisputed. She had minimal participation by virtue of appearing as a witness in a few hour proceeding in the context of a five years long litigation, in which case her counsel merely appeared to interpose objections on the record during the course of her cross examination and nothing more. THE COURT: Well, didn't he file an affirmation before that? He filed documents. It wasn't just that he showed up the day of the hearing and asked her questions. Isn't that accurate? MS. WERNICK: Yes, so in July of 2021 -- THE COURT: Right. MS. WERNICK: Right, there was an affirmation filed. But, again, it's in connection with the debtor's opposition to a contempt finding, not as part as any affirmative -- THE COURT: Well, why should she need to file anything on behalf of the debtor's opposition to a contempt filing in July of 2021 when the hearing on the ownership wasn't until February of 2022? MS. WERNICK: Well, because there was an initial Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 55 of\n\n| | Case 22-50073
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56 |\n| 1 | hearing in July. |\n| 2 | THE COURT:
But she wasn't called at that hearing. |\n| 3 | MS. WERNICK:
Well, there's nothing inconsistent |\n| 4 | in providing evidence to the debtor with respect to the |\n| 5 | ownership issue, but then continuing to argue that there was |\n| 6 | not an opportunity for our client, HK USA, to be heard as a |\n| 7 | witness to represent their own interest in the context of a |\n| 8 | litigation where they were just a bit part in a year's long |\n| 9 | proceeding. |\n| 10 | THE COURT:
Okay. |\n| 11 | MS. WERNICK:
And so with that I would just end |\n| 12 | by repeating where I began. HK USA, Ms. Guo, were not |\n| 13 | parties to the New York action.
As Your Honor noted, they |\n| 14 | had two interactions with the underlying dispute over the |\n| 15 | course of a five-year history of that litigation. |\n| 16 | Ms. Guo appeared at the February 2nd, 2022 hearing |\n| 17 | as a witness for the debtor, did not have the opportunity to |\n| 18 | cross examine any witnesses, present additional witnesses, |\n| 19 | provide briefing, appeal any determination of the court. |\n| 20 | But more importantly I think going back to the |\n| 21 | first prong is that the issues before this court are simply |\n| 22 | not the same as the issues that were before the court in New |\n| 23 | York, in that the court in New York was being asked to |\n| 24 | consider the issue of contempt, always having an |\n| 25 | understanding that there would have to be another proceeding |\n| | |\n\n| | Case 22-50073
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57 |\n| 1 | on turnover. |\n| 2 | And the trustee here is simply looking to skip |\n| 3 | that other proceeding and essentially take dicta in the |\n| 4 | context of the court's contempt order and make a dispositive |\n| 5 | finding here, which he cannot do under the law. |\n| 6 | THE COURT:
Thank you. |\n| 7 | MR. MORIARTY:
Your Honor, may I just have one |\n| 8 | moment with my co-counsel before she wraps? |\n| 9 | THE COURT:
You may have one moment. |\n| 10 | MR. MORIARTY:
Thank you. |\n| 11 | (Pause.) |\n| 12 | MR. BASSETT:
Again, Your Honor, for the record, |\n| 13 | Nick Bassett, from Paul Hastings, on behalf of the Chapter |\n| 14 | 11 Trustee. |\n| 15 | Your Honor, I'll try to be hopefully brief in my |\n| 16 | arguments in response.
I did want to address a couple of |\n| 17 | the points that came up. |\n| 18 | The first is I want to address this issue that |\n| 19 | counsel sort of started and ended with which is the argument |\n| 20 | that the issues were different. |\n| 21 | I don't think there is any, again, genuine dispute |\n| 22 | of material fact as to the position of the trustee that the |\n| 23 | issues were identical. |\n| 24 | And I would submit at the outset that the analysis |\n| 25 | starts and ends with the language that the New York courts |\n| | |\n\n| | Case 22-50073
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58 |\n| 1 | specifically put in the orders they issued. |\n| 2 | Back, again, to the slide, page 3.
And I thought |\n| 3 | it was rather revealing that counsel did not talk at all |\n| 4 | about the clear construction of the appellate division in |\n| 5 | his November, 2021 order, which it said Ostrager is |\n| 6 | instructed to proceed with an evidentiary hearing to resolve |\n| 7 | a dispute as to ownership and control of the yacht. |\n| 8 | And the Justice Ostrager did exactly that in his |\n| 9 | February 9th decision.
Again, he says pursuant to that |\n| 10 | appellate court the court scheduled the February 2nd hearing |\n| 11 | to resolve the issue of whether Kwok beneficially owns and |\n| 12 | controls the yacht. |\n| 13 | What counsel would like the court to do is to read |\n| 14 | some additional language that doesn't exist into the court's |\n| 15 | framing of the issue to suggest that Ostrager had told the |\n| 16 | parties in his ruling and that the appellate court had |\n| 17 | instructed him to find of the debtor held any interest, |\n| 18 | however small, in the ownership of the yacht. |\n| 19 | But that is not what the plain language of his |\n| 20 | decision says.
The issue of whether Kwok -- Kwok, not the |\n| 21 | daughter, but of Kwok, beneficially owns and controls the |\n| 22 | yacht. |\n| 23 | Again, I won't belabor the point but his findings, |\n| 24 | based on the decision, were completely consistent with that. |\n| 25 | The issue he was deciding was whether the debtor had some |\n\n| | Case 22-50073
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59 |\n| 1 | interest, however small, then he would not have found as he |\n| 2 | did that the daughter's testimony that she owned the yacht |\n| 3 | cannot be credited whatsoever. |\n| 4 | He says cannot be credited in any respect.
That |\n| 5 | means he categorically rejected her argument that she had |\n| 6 | some ownership interest in the yacht. |\n| 7 | And, Your Honor, the fact that the issue was |\n| 8 | presented and decided in this manner is, in fact, consistent |\n| 9 | with the final contempt issue before the court. |\n| 10 | I believe counsel framed the issue on contempt as |\n| 11 | involving several elements, including whether there was a |\n| 12 | lawful order, whether that order was disobeyed, whether the |\n| 13 | party disobeying that order had knowledge of it and whether |\n| 14 | there would be prejudice as a result. |\n| 15 | And if you look at the submissions of the parties, |\n| 16 | including the briefing to the appellate division, when they |\n| 17 | talk about the ownership issue, the reason that was relevant |\n| 18 | and central to the finding was that it went to the question |\n| 19 | of prejudice, because the argument was if the debtor does |\n| 20 | not won the yacht, then how is PAX, a judgment creditor, |\n| 21 | going to be prejudiced by the yacht moving from the |\n| 22 | jurisdiction. |\n| 23 | So the court needed to decide the ownership issue |\n| 24 | to decide prejudice.
And he wasn't just deciding that the |\n| 25 | debtor held some interest greater than zero in the yacht for |\n\n| | Case 22-50073
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60 |\n| 1 | purposes of reaching that decision, because you have to look |\n| 2 | at what the order was that he was entering, that he was |\n| 3 | being asked to enter. |\n| 4 | It was an order not just giving the debtor a slap |\n| 5 | on the wrist for keeping the yacht outside of the |\n| 6 | jurisdiction.
He was imposing a \\$500,000 per day penalty if |\n| 7 | he did so. |\n| 8 | What the appellate court recognized, and Justice |\n| 9 | Ostrager recognized, is that to support that finding it was |\n| 10 | necessary for him to determine that the debtor, and the |\n| 11 | debtor alone, owned the yacht, because that is a |\n| 12 | significant, to say the least, fine. |\n| 13 | It would have made on sense for Justice Ostrager |\n| 14 | to support his contempt decision if he had merely decided |\n| 15 | that the debtor owned, for example, a .01 ownership interest |\n| 16 | in the yacht, which is what counsel claims was the issue |\n| 17 | before the court. |\n| 18 | So the other point they raise about how there |\n| 19 | would eventually have been a further turnover proceeding in |\n| 20 | order to determine the yacht's ownership, I agree that had |\n| 21 | the litigation not been stayed, PAX probably would have |\n| 22 | moved for turnover. |\n| 23 | But guess what?
In response to that, they would |\n| 24 | have said collateral estoppel.
They would have said law of |\n| 25 | the case.
They would have said Justice Ostrager, you |\n| | |\n\n| | Case 22-50073
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61 |\n| 1 | already decided this issue. It's the debtor's property. |\n| 2 | So there wasn't -- the fact there may have been a |\n| 3 | later turn over motion doesn't mean that the final prior |\n| 4 | decision, as made clear by Justice Ostrager in his order, |\n| 5 | itself has preclusive effect. |\n| 6 | Just to address
-- I won't spend a whole lot of |\n| 7 | time on the participation issues because I think the record |\n| 8 | is undisputed, certainly beyond any genuine dispute as |\n| 9 | required by Rule 56 for summary judgment, that the counter |\n| 10 | defendants, HK USA participated extensively. |\n| 11 | This was already covered during your colloquy with |\n| 12 | counsel.
Attorney Vartan decided to submit his lengthy |\n| 13 | affirmation.
They called witnesses. |\n| 14 | And, again, in addition to that it wasn't just the |\n| 15 | counter-defendants and HK USA who protected their interest |\n| 16 | by personally participating in the proceedings.
They had an |\n| 17 | alignment of interest with the debtor who himself did all |\n| 18 | the things they claim they couldn't do. |\n| 19 | He filed a post-trial brief.
He did everything. |\n| 20 | He argued his case based on their evidence, based on their |\n| 21 | testimony. |\n| 22 | So under all the facts and circumstances, which is |\n| 23 | what a court has to look at in determining whether the |\n| 24 | litigant to be estopped had a full and fair opportunity in a |\n| 25 | prior action, I don't think they were could be any question. |\n| | |\n\n| | Case 22-50073
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62 |\n| 1 | And this is a perfect case to demonstrate that that element |\n| 2 | is satisfied. |\n| 3 | They mention the fact that this is a five-year |\n| 4 | litigation and they weren't involved until close to the end |\n| 5 | of -- the issue that we're talking about was the issue that |\n| 6 | was presented to Justice Ostrager as a result of the March |\n| 7 | and July, 2021 contempt orders.
And that is the issue in |\n| 8 | which HK USA and Mei Guo were heavily involved. |\n| 9 | I'll spend just a couple of moments addressing the |\n| 10 | issue of whether the pendency of an appeal in New York can |\n| 11 | defeat collateral estoppel. |\n| 12 | I think the court was absolutely correct in its |\n| 13 | assessment of the Bland
case and other authorities relied |\n| 14 | upon by counsel for the counter-defendants. |\n| 15 | Those cases involved administrative proceedings. |\n| 16 | They involved completely different circumstances where based |\n| 17 | on, again, all the facts and circumstances they did not |\n| 18 | apply collateral estoppel. |\n| 19 | It was not because there was not an opportunity |\n| 20 | for appellate review.
That's not the way the test works. |\n| 21 | That's not what those courts decided. |\n| 22 | And, again, the case law on this is crystal clear |\n| 23 | in New York.
And I just want to give the court another more |\n| 24 | recent decision that drives home the point. |\n| 25 | This is the -- it's a bankruptcy case of a debtor, |\n| | |\n\n| | Case 22-50073
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63 |\n| 1 | Adamo, in an adversary proceeding Marini vs. Adamo.
The |\n| 2 | case citation is 560 B.R. 642.
This is in the United States |\n| 3 | Bankruptcy Court, Eastern District of New York decision from |\n| 4 | 2016. |\n| 5 | THE COURT:
560 B.R. what? |\n| 6 | MR. BASSETT:
560 B.R. 642. |\n| 7 | THE COURT:
Okay.
Go ahead.
Thank you. |\n| 8 | MR. BASSETT:
2016 decision.
If you go to the |\n| 9 | last page of the decision, it deals with collateral |\n| 10 | estoppel. |\n| 11 | Defendant -- and this is a quote, \"Defendant's |\n| 12 | second argument in opposition to the motion is equally |\n| 13 | unavailing.
Defendant contends that collateral estoppel |\n| 14 | does not apply because he filed an appeal.
The pendency of |\n| 15 | an appeal does not preclude application of the doctrine of |\n| 16 | estoppel.
And it cites cases in support of that conclusion. |\n| 17 | So I don't think that issue is subject to any real |\n| 18 | dispute. |\n| 19 | Your Honor, let me just, with the court's |\n| 20 | indulgence, check my notes to make sure I had no other |\n| 21 | points that I wanted to make. |\n| 22 | One last note that I made is that I think counsel |\n| 23 | again mentioned the fact that during the hearings before |\n| 24 | Justice Ostrager they didn't have the opportunity to cross |\n| 25 | witnesses. |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 64 I think it's worth the only witness who was presented by PAX was a witness who was authenticating social media posts. So this is not a situation where PAX paraded an assortment of fact witnesses and they had no ability to cross examine. I don't think that would change anything one iota if that were the case. But I just wanted to point out that that was, in fact, what happened before Justice Ostrager on February 2nd. That's all I have, but I'm, of course, happy to answer any questions the court may have. THE COURT: Thank you. I don't have any questions at this time. MR. BASSETT: Thank you, Your Honor. THE COURT: Counsel, would you like to respond? MS. WERNICK: Just briefly, Your Honor. THE COURT: Sure. MS. WERNICK: So, again, just to begin, I want to draw the court's attention back to the appellate division decision that counsel just mentioned. And I think it's worth noting to the court that the appellate division in affirming Justice Ostrager's decision noted that the court was in its discretion to hold the defendant in contempt, citing the various prongs of a contempt ruling, including the idea that such a violation resulted in prejudice to plaintiff's rights. Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 64 of\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 65 of\n\n| | 103 |\n|----|----------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
65 |\n| 1 | And so the idea that that was a necessary finding |\n| 2 | of there being ownership in connection with central |\n| 3 | prejudice to PAX's rights in the court below, I think |\n| 4 | doesn't jive with the court -- the appellate division's |\n| 5 | decision. |\n| 6 | And, again, I recognize that the appellate |\n| 7 | division instructed the lower court to proceed with an |\n| 8 | evidentiary hearing to resolve a dispute as to ownership, |\n| 9 | but I don't know if what -- the proceeding that filed is |\n| 10 | necessarily what the appellate division was contemplating as |\n| 11 | opposed to a separate proceeding, as I noted that the CLPR |\n| 12 | would call for with respect to a full determination on |\n| 13 | ownership involving the party in possession of the asset |\n| 14 | here, the yacht and HK. |\n| 15 | THE COURT:
Well, let me ask you a question about |\n| 16 | that. |\n| 17 | So you're saying you don't know what the appellate |\n| 18 | court was -- what it meant when it said conduct an |\n| 19 | evidentiary hearing.
It could have meant that they wanted a |\n| 20 | CPLR 5225 hearing to proceed? |\n| 21 | MS. WERNICK:
I think it's just plausible -- |\n| 22 | THE COURT:
Okay.
So tell me what the difference |\n| 23 | is then. |\n| 24 | MS. WERNICK:
Well, a CPLR 5225 proceeding would |\n| 25 | be a proceeding commenced against HK USA. |\n| | |\n\n| | Case 22-50073
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66 | | |\n| 1 | THE COURT:
Okay.
Well, why wouldn't the | | |\n| 2 | appellate court have said that, as opposed to saying I want | | |\n| 3 | you to conduct an evidentiary hearing on the issue of who | | |\n| 4 | owns the yacht?
Why wouldn't they have said that. | | |\n| 5 | I mean, the appellate court knows the CPLR.
They | | |\n| 6 | know it, right?
I mean, I would assume they obviously know | | |\n| 7 | it.
And they would understand the distinction between that | | |\n| 8 | proceeding and HK USA at that time, why couldn't you have | | |\n| 9 | started a proceeding under CPLR rules? | | |\n| 10 | I'm not saying a 5225 proceeding, but you could | | |\n| | | | |\n\n have started some proceeding as well if you were concerned about there actually being an evidentiary hearing in which you weren't a party.\n\n MS. WERNICK: Yes, I mean, I think with respect to that, I mean some of that is a bit of speculation and a matter of retrospect in the manner in which things have since played out.\n\n But I think the notion is that that as I said in the initial presentation there wouldn't have been a reason for HK USA to intervene in the PAX litigation, since it had a full and fair expectation of there being some other proceeding involving them if there was going to be a question of turnover, which the trustee is now asking for here.\n\nAnd I think just from a plain reading of the\n\n### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 67 of\n\n| | 103 | |\n|---|-------------------------------------------------------------|----|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023 | 67 |\n| 1 | appellate division's decision, I think there is certain | |\n| 2 | ambiguity in the decision, but leads to a fair conclusion | |\n| 3 | that if there was going to be a determination as against HK | |\n| 4 | USA, that they would have to have been involved in that | |\n| 5 | proceeding as something other than a mere witness. | |\n\n And so, again, just to comment on counsel's remarks regarding the full participation of HK USA and the New York proceeding, again, I think the entirety of the contempt hearing occurred over the matter of a few hours.\n\n There was, you know, maybe two hours of testimony on this issue and certainly -- I mean, I remember I was here I guess just ten days ago in connection with the PJR application, where counsel came in with boat loads of documents and information ready to present on the underlying issues, which surely would be much more than the record that was before the court in New York in order to make a substantive decision on this very significant asset.\n\n THE COURT: Okay. Anything further? MS. WERNICK: And then just on the issue of appellate review, not to just go back and forth with case citations, but I would also refer the court to *Gelb vs. Royal Globe Insurance Company*, which is 798 F.2d 38. THE COURT: I think I did see that case. It was a criminal case, right? MS. WERNICK: It involved an underlying criminal\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 68 conviction, correct. THE COURT: All right. Anything further, counsel? No? Okay. MR. BASSETT: No, Your Honor. THE COURT: All right. With regard to the emergency motion for an order that the trustee has filed with regard to the repair reserve for the insurance and other payments, Mr. Bassett, are you prepared to discuss that at the moment, or who's going to -- MR. BASSETT: The Trustee's going to address that, Your Honor. THE COURT: Okay. Trustee Despins. And Mr. Moriarty, you're going to address that issue? MR. MORIARTY: I will, Your Honor, although my understanding of that motion is that it's contingent upon the court's ruling on the summary judgment motion and it may be that depending on how the court rules on the summary judgment motion, we may be able to reach agreement on that motion. THE COURT: You may be able to reach an agreement? MR. MORIARTY: Yes. THE COURT: What does that mean? What kind of an agreement? MR. MORIARTY: I would have to speak with the trustee about a proposed order, depending on -- Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 68 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 69 THE COURT: Why couldn't you reach the agreement regardless? You can't have a boat -- a yacht without insurance. Your own motion that you withdrew, the motion to modify, I looked at it again, okay. And in that motion you have an extensive attachment, breakdown line by line, about how all the monies were going to be spent, which included over \\$100,000 for payment of insurance. So HK, until you withdraw the motion after consenting to the entry of the PJR and the preliminary injunction, your own client's position was that the insurance needed to be paid. MR. MORIARTY: I agree with that, Your Honor. THE COURT: And Mr. Despins is in control of the funds. And that was on consent. Mr. Despins holds the funds. How could it be prejudicial to your client to have the funds spent in the manner in which you wanted -- your client wants those funds spent until it decided to withdraw the motion, which was supposed to be heard last week. We were going to have an evidentiary hearing on that motion, as you recall. So how would that prejudicial to your client, regardless of what the ruling is on summary judgment? MR. MORIARTY: Your Honor, if the court grants the Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 69 of\n\n# Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 70 of\n\n| | 103 |\n|----|-----------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
70 |\n| 1 | trustee's summary judgment motion, the trustee takes title |\n| 2 | to the Lady May, the repair reserve is part of that broader |\n| 3 | escrow.
The escrow was \\$37 million that was loaned to HK. I |\n| 4 | understand that the Department of Justice, the SEC and the |\n| 5 | trustee may have different views on that, but as of right |\n| 6 | now there is a \\$37 million loan made to HK -- |\n| 7 | THE COURT:
But you've agreed and consented to \\$4 |\n| 8 | million of it going -- being held by the trustee in this |\n| 9 | repair reserve. |\n| 10 | MR. MORIARTY:
Correct. |\n| 11 | THE COURT:
So I understand your argument about |\n| 12 | the loan. I'm not getting involved in the loan right now, |\n| 13 | right? |\n| 14 | What I'm asking you is regardless of how I rule on |\n| 15 | summary judgment, how would it be prejudicial to your client |\n| 16 | to have -- your clients, to have the trustee spend the money |\n| 17 | in the same way you propose to spend -- you propose that it |\n| 18 | be spent a few weeks ago. |\n| 19 | MR. MORIARTY:
So, Your Honor, it probably |\n| 20 | wouldn't be prejudicial. |\n| 21 | THE COURT:
Okay.
Good. |\n| 22 | MR. MORIARTY:
My point is -- |\n| 23 | THE COURT:
It doesn't matter.
Then why aren't we |\n| 24 | agreeing to it. |\n| 25 | Even if the insurance is obtained in the name of |\n| | |\n\n| | Case 22-50073
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71 |\n| 1 | HK for the benefit of the trustee, why are we arguing about |\n| 2 | it? |\n| 3 | MR. MORIARTY:
Your Honor, if the trustee takes |\n| 4 | title to the boat this money, which as of right now is HK's |\n| 5 | money because it took the loan -- |\n| 6 | THE COURT:
Well, it's subject to a prejudgment |\n| 7 | remedy right now and a preliminary injunction, right? |\n| 8 | MR. MORIARTY:
Correct. |\n| 9 | THE COURT:
Okay. |\n| 10 | MR. MORIARTY:
But it's still HK's property, |\n| 11 | regardless of whether it's attached. |\n| 12 | THE COURT:
It may be. |\n| 13 | MR. MORIARTY:
The attachment doesn't affect HK's |\n| 14 | property rights. It just affects HK's ability to deal with |\n| 15 | the property and to dissipate the property. |\n| 16 | So as of right now that's HK's property.
If title |\n| 17 | passes to the trustee, then the trustee is using HK's |\n| 18 | property to maintain an asset of the estate. |\n| 19 | So all that we would be asking for is that the |\n| 20 | order protects HK's rights so that if in the future this |\n| 21 | court or another court of competent jurisdiction finds that |\n| 22 | those funds are HK's, then HK would have a right to recoup |\n| 23 | the money that the trustee has spent to maintain an estate |\n| 24 | asset. |\n| 25 | THE COURT:
Well, how would that right go away, |\n| | |\n\n| Case 22-50073
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72 | |\n| 1 | even if he did spend it?
Even if he did spend it, how would | |\n| 2 | -- there's nothing that would say your right of recoupment. | |\n| 3 | Where under the law would your right of recoupment go away, | |\n| 4 | if you're right, if you prevail? | |\n| 5 | MR. MORIARTY:
It may not, Your Honor, but all | |\n| 6 | that I'm saying is that we would want some specific language | |\n| 7 | in an order, which I think we could work out, that | |\n| 8 | specifically provides for that so that we're not -- | |\n| 9 | THE COURT:
Well, my point is this, counsel. I | |\n| 10 | hear you, but even if I don't rule on summary judgment | |\n| 11 | today, why wouldn't you be able to do what you're talking | |\n| 12 | about?
I don't understand why that can't be accomplished. | |\n| 13 | MR. MORIARTY:
It probably could be, Your Honor -- | |\n| 14 | THE COURT:
Okay.
Good.
Well, then we're going | |\n| 15 | to take a recess and you're going to accomplish it. | |\n| 16 | MR. MORIARTY:
Okay.
But -- | |\n| 17 | THE COURT:
Because it doesn't make any sense. | |\n| 18 | What are going to fight about?
Your clients in pleadings | |\n| 19 | before this court said we need to spend this money.
And | |\n| 20 | we've been talking about spending the money for the reserve | |\n| 21 | for months now, back to November or December or something. I | |\n| 22 | don't recall at the moment, but for several months now. | |\n| 23 | And the parties have seemed to work to -- not | |\n| 24 | necessarily on all fours, but that things have to get paid | |\n| 25 | and we were taking it in certain steps, right?
We were | |\n\n| | Case 22-50073
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73 |\n| 1 | taking it incrementally. |\n| 2 | But the problem now isn't an incremental problem. |\n| 3 | If your client -- you talk about your property, right?
Your |\n| 4 | client's property.
Why would you want to have your client's |\n| 5 | boat -- yacht, exposed to the world without insurance? I |\n| 6 | just can't understand that. |\n| 7 | MR. MORIARTY:
We don't, Your Honor. |\n| 8 | THE COURT:
Then work out a deal.
The money's |\n| 9 | there.
You asked for the same amount of money the trustee's |\n| 10 | asking for. |\n| 11 | MR. MORIARTY:
Correct, Your Honor.
We did at a |\n| 12 | time when my client owned and had title to the boat. |\n| 13 | My only point is if title passes, we just want to |\n| 14 | make sure that we have rights in the event that this money |\n| 15 | is determined to be HK's at some future point. |\n| 16 | THE COURT:
Well, I'm going to give you the |\n| 17 | opportunity to have that discussion with the trustee right |\n| 18 | now. |\n| 19 | MR. MORIARTY:
Thank you. |\n| 20 | THE COURT:
Okay?
Because I don't see any reason |\n| 21 | why we're going to sit here and have an argument about |\n| 22 | release of the funds when it's clear that the boat -- the |\n| 23 | yacht has to be insured. It has to be insured.
I don't know |\n| 24 | why you would open up your clients to a cause of action that |\n| 25 | they failed to insure it. |\n\n#### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 74 of\n\n| | 103 |\n|----|-----------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
74 |\n| 1 | I mean, I can't understand that.
So I can't |\n| 2 | believe that you're actually doing that so I think that you |\n| 3 | just need to work out a deal with regard to the money so |\n| 4 | that the insurance can be obtained and that there's |\n| 5 | insurance that covers the yacht.
I think that clearly needs |\n| 6 | to happen. |\n| 7 | And it would have happened -- I mean, we were |\n| 8 | supposed to have that evidentiary hearing last week, but you |\n| 9 | chose -- and that's your choice.
But you made a choice to |\n| 10 | withdraw that motion.
Okay.
So that motion was withdrawn. |\n| 11 | But it still doesn't change the fact that the yacht needs to |\n| 12 | be insured, whether you own it or the trustee owns it. |\n| 13 | I agree, Your Honor.
And I frankly don't know |\n| 14 | what the relief would have been on that motion because the |\n| 15 | trustee did oppose that motion and now he's asking for the |\n| 16 | same relief, but I agree with the court and I hear the |\n| 17 | direction, and we will work it out. |\n| 18 | THE COURT:
Okay.
Thank you.
So then -- |\n| 19 | MR. DESPINS:
So -- |\n| 20 | THE COURT:
Yes, Trustee Despins. |\n| 21 | MR. DESPINS:
Your Honor, I hate to say it like |\n| 22 | that, but we have an expert that's working with us on |\n| 23 | getting insurance and the feedback we got is we cannot get |\n| 24 | insurance unless we have title. |\n| 25 | THE COURT:
I understand all that. I'm not |\n| | |\n\n| | Case 22-50073
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75 |\n| 1 | disputing what you're saying to me, okay.
But I'm also |\n| 2 | saying I'm not going to have an argument of an hour and a |\n| 3 | half about whether money should be spent and by whom. |\n| 4 | MR. DESPINS:
Agreed, Your Honor. |\n| 5 | THE COURT:
Okay.
Because it clearly needs to be |\n| 6 | spent.
There's -- no one can dispute that. |\n| 7 | So what I'm going to do is I'm going to take a |\n| 8 | recess until 2:00 p.m.
I'd ask the parties to have a |\n| 9 | discussion about the expenditure of the funds to obtain the |\n| 10 | insurance and possibly the other items, such as pay the |\n| 11 | crew, and the other things that are in the motion. |\n| 12 | And then I'm going to go back. I have to look at - |\n| 13 | - you've both cited some new case law.
I haven't looked at |\n| 14 | it. I need to look at that and then we'll come back at 2 |\n| 15 | o'clock and we'll see where things stand. |\n| 16 | But I do think that the issue of -- I just -- the |\n| 17 | trustee is in control of the reserve -- repair reserve. I |\n| 18 | understand your argument, Mr. Moriarty. I do.
About at one |\n| 19 | point they're objecting. Now they're asking for the same |\n| 20 | thing. |\n| 21 | But you're objecting to what they're -- we keep |\n| 22 | going back and forth.
The long story short is your client |\n| 23 | wanted that money spent to protect what it believes is its |\n| 24 | asset. It says it's his asset.
So then let's spend it. |\n| 25 | There is no way that this court is going to go |\n| | |\n\n| | Case 22-50073
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76 |\n| 1 | forward without the insurance being obtained however it |\n| 2 | needs to be obtained. |\n| 3 | Now you say you want to make sure that if the |\n| 4 | title passes you have recoupment rights. I don't know how -- |\n| 5 | I don't know where in the law you don't have whatever rights |\n| 6 | you claim you have. |\n| 7 | But that's something you can all talk about, okay? |\n| 8 | MR. MORIARTY:
Thank you, Your Honor. |\n| 9 | THE COURT:
All right.
So then court is in recess |\n| 10 | until 2:00 p.m. |\n| 11 | MR. DESPINS:
Thank you. |\n| 12 | (Recess from 12:51 p.m. until 2:19 p.m.) |\n| 13 | THE COURT:
Okay.
Before we took a recess we were |\n| 14 | discussing the issues about the monies in the repair reserve |\n| 15 | and if the parties would discuss any possible agreement or |\n| 16 | resolution with regard to the repair reserve, specifically |\n| 17 | with regard to the obtaining of insurance to insure the Lady |\n| 18 | May and then also with regard to other costs associated with |\n| 19 | the maintenance of the yacht. |\n| 20 | So Trustee Despins, Attorney Moriarty, did you |\n| 21 | have any discussions during the break. |\n| 22 | MR. MORIARTY:
We did, Your Honor. I actually had |\n| 23 | brought with me to court today a markup of the order that |\n| 24 | was -- proposed order that was filed with Trustee Despins's |\n| 25 | motion.
I gave them my redline.
They gave me back some |\n| | |\n\n| | Case 22-50073
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77 |\n| 1 | comments and I would say 98 percent of this is done. |\n| 2 | There's one thing that I just need to confirm with |\n| 3 | my office that I haven't been able to do yet, so what I will |\n| 4 | represent to the court and say to the court is the -- HK has |\n| 5 | no objection to the entry of or -- let me back up. |\n| 6 | HK has no objection to the trustee's motion and |\n| 7 | does not oppose entry of an order permitting the trustee to |\n| 8 | use up the \\$500,000 from the repair reserves with an agreed |\n| 9 | upon order to follow. |\n| 10 | THE COURT:
Okay.
Trustee Despins? |\n| 11 | MR. DESPINS:
That's correct, Your Honor. I think |\n| 12 | we're fairly comfortable that we'll have a consensual order |\n| 13 | in a few hours. |\n| 14 | THE COURT:
Okay.
So is the consensual order |\n| 15 | going to say that title to the Lady May is in the name of |\n| 16 | the estate of Ho Wan Kwok? |\n| 17 | MR. MORIARTY:
It is not, Your Honor, which is the |\n| 18 | reason why I initially said -- |\n| 19 | THE COURT:
I understand. |\n| 20 | MR. MORIARTY:
-- the second order is based on the |\n| 21 | summary judgment rule. |\n| 22 | THE COURT:
Okay. I understand. All right. |\n| 23 | Anything further on summary judgment? |\n| 24 | MR. MORIARTY:
No, Your Honor. |\n| 25 | THE COURT:
All right.
During the recess the |\n| | |\n\n#### Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 78 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 78 court went and reviewed certain documents, including -- and cases that were cited by the parties during oral argument and reviewed the pleadings submitted by the parties and the pleadings in -- that include pleadings in the main Chapter 11 case of Mr. Kwok and in the action that PAX commenced against Mr. Kwok in the New York State Court that was one of the reasons the debtors -- debtor, Mr. Kwok, indicated he had voluntarily commenced this Chapter 11 case and had come to this court to seek relief under the bankruptcy code. With regard to the motion for summary judgment\n\n that's before the court today, ECF No. 146, the court's reviewed the positions of the parties and listened to the oral arguments made today during the hearing on the motion for summary judgment.\n\n Upon review of the first counterclaim of the Chapter 11 trustee, which is contained in ECF No. 36, the first counterclaim in that pleading filed by the trustee is entitled Lady May is Property of the Debtor.\n\n And in the -- I'm -- I think it's only less than ten paragraphs of that pleading, but I will look right now. (Pause.)\n\n The first counterclaim appears on page 58 -- begins on page 58 of ECF 36. Actually, it's only seven paragraphs, the counterclaim.\n\nAnd obviously it does incorporate and realleges\n\n| | Case 22-50073
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79 |\n| 1 | facts in prior complaint -- in prior paragraphs of the |\n| 2 | document but paragraph 106 says that in the final contempt |\n| 3 | decision Justice Ostrager found that the debtor beneficially |\n| 4 | owns and controls the Lady May. |\n| 5 | And then paragraph 107 states that Justice |\n| 6 | Ostrager's finding with respect to the debtor's ownership of |\n| 7 | the Lady May was preclusive in effect and HK USA is |\n| 8 | collaterally estopped from contesting that issue. |\n| 9 | Paragraph 108 states that New York issue |\n| 10 | preclusion law is applicable, given that the findings in the |\n| 11 | final contempt decision were made by a New York court. |\n| 12 | The next paragraph, 109, says under New York law |\n| 13 | collateral estopped bars relitigation of an issue when the |\n| 14 | identical issues necessarily was decided in the prior action |\n| 15 | and is decisive of the present action and the party to be |\n| 16 | precluded from relitigating the issue had a full and fair |\n| 17 | opportunity litigate the issue in the prior action. |\n| 18 | And there's a cite to Plymouth Venture Partners |\n| 19 | II, LP vs. GTR Source, LLC, 988 F.3d 634, 642 Second Circuit |\n| 20 | 2021, applying New York law. |\n| 21 | So when the court -- and he parties have agreed, |\n| 22 | both counsel for the trustee and counsel for HK USA, that |\n| 23 | the test that the court has to apply in determining whether |\n| 24 | collateral estoppel applies in this adversary proceeding is |\n| 25 | the test that I just read into the record and that is stated |\n\n| | Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 80 of |\n|--|---------------|----------|----------------|---------------------------|------------|\n|--|---------------|----------|----------------|---------------------------|------------|\n\n| | 103 |\n|----|----------------------------------------------------------------|\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
80 |\n| 1 | in Plymouth Ventures, which is the identical issue |\n| 2 | necessarily was decided in the prior action and is decisive |\n| 3 | of the present action and the party to be preluded from |\n| 4 | relitigating the issue had a full and fair opportunity to |\n| 5 | litigate the issue in the prior action. |\n| 6 | So the court has gone back and reviewed these -- |\n| 7 | the two factors and as I said, the parties agree that they |\n| 8 | apply, but how those factors apply, the parties are not in |\n| 9 | agreement with regard to their application. |\n| 10 | So with regard to the first factor, the identical |\n| 11 | issue was necessarily -- was decided in the prior action and |\n| 12 | is decisive of the present action, there really are the two |\n| 13 | components to that.
It has to be the identical issue was in |\n| 14 | both cases and that it was necessarily decided in the prior |\n| 15 | case. |\n| 16 | The identical issue in this case, there's a |\n| 17 | disagreement about what it is, although not a complete |\n| 18 | disagreement.
The argument made by the trustee is that the |\n| 19 | identical issue in this case that is decisive of the summary |\n| 20 | judgment motion on the first counterclaim is that the Lady |\n| 21 | May is property of the debtor's, Mr. Kwok's Chapter 11 |\n| 22 | estate. |\n| 23 | HK argues that while that issue was addressed in |\n| 24 | the prior litigation, the issue was in the prior litigation |\n| 25 | an issue of contempt and not the ownership of the Lady May. |\n| | |\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 81 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 81 The court agrees with the trustee that the issue that is decisive of the summary judgment motion in the present action is the identical issue that was necessarily decided in the prior action.\n\n The arguments made by HK USA that the appellate court direction to Justice Ostrager was possibly not clear are not persuasive.\n\n If we look at the appellate court's direction to Justice Ostrager, which is at Exhibit 15 attached to ECF 150, which is the Bassett declaration, the appellate court says, and I quote, \"The motion court is instructed to proceed with an evidentiary hearing to resolve a dispute as to the ownership and control of the yacht, and to assess appropriate penalties.\"\n\n Therefore, this court finds that the issue -- the identical issue that was necessarily decided on direction from the appellate court, which Justice Ostrager did decide in his opinion of February 9, 2022 -- I believe, I'm correct on that date, was the ownership of the Lady May.\n\n And so the identical issue that was necessarily decided in the prior action by the New York State Court is decisive of the present action and that part of the first factor is met, as is the second part of the first factor, which is it was necessarily decided in the prior case. I'm just looking for the reference to -- and I\n\n| Case 22-50073
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82 |\n| will find it.
The Justice Ostrager opinion is Exhibit 18 to |\n| ECF 150, the Bassett declaration? |\n| (Pause.) |\n| MR. MORIARTY:
That's correct, Your Honor. |\n| THE COURT:
And the language -- there's several |\n| portions in the decision that the court will refer to at |\n| different points and that have been referred to by both |\n| parties during the oral argument. |\n| But Justice Ostrager found after conducting the |\n| hearing that he was required to conduct by the appellate |\n| court in entering a final order of civil contempt, which is |\n| what Justice Ostrager's opinion says.
And so it wasn't a |\n| situation where this wasn't a proceeding that was some |\n| preliminary step in the litigation. |\n| Justice Ostrager found that the proceedings |\n| established, among other things, that Kwok exercised |\n| dominion and control over the Lady May and that resulted in |\n| a series of orders restraining Kwok, and or the registered |\n| owners of the yacht called Lady May, from removing the Lady |\n| May from the court's jurisdiction. |\n| The first such order was issued in September 30, |\n| 2022 -- I'm sorry. I read that wrong.
Issued on September |\n| 30, 2020, which the court finds was well in excess of |\n| February 9, 2022, and described -- as described in greater |\n| detail in Justice Ostrager's opinion, which was followed by |\n| |\n\n| | Case 22-50073
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83 |\n| 1 | an October 15, 2020 order that restrained Mr. Kwok, and/or |\n| 2 | the registered owners of the yacht, the Lady May, from |\n| 3 | leaving the jurisdiction. |\n| 4 | So as early as September 30, 2020 and then |\n| 5 | subsequent orders issuing as well, the registered owner of |\n| 6 | the Lady May was served with orders restraining Mr. Kwok |\n| 7 | and/or the registered owners from leaving the jurisdiction. |\n| 8 | No actions were taken that the court is aware of |\n| 9 | by the registered owners in the action in front of Justice |\n| 10 | Ostrager to either vacate or set aside a temporary |\n| 11 | restraining order that clearly restrained them, the |\n| 12 | registered owners, meaning HK USA and Ms. Guo, from removing |\n| 13 | the yacht from the jurisdiction of the New York court. |\n| 14 | In addition, Justice Ostrager states in his |\n| 15 | opinion the testimony adduced at the hearing, out of the |\n| 16 | mouths of the defendant's witnesses, clearly and |\n| 17 | convincingly demonstrated that Kwok beneficially owns and |\n| 18 | controls the Lady May and has utter contempt for this court |\n| 19 | and the judicial process. |\n| 20 | Justice Ostrager goes on to say the testimony |\n| 21 | adduced at the hearing established that in 2014 Kwok |\n| 22 | transferred a 100 percent interest in HK International to |\n| 23 | one Qu Guo Jiao for no consideration. Ms. Qu was a trusted |\n| 24 | business associate of the Kwok family. |\n| 25 | Thereafter, Kwok fled China and on February 23rd, |\n| | |\n\n| | Case 22-50073
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84 |\n| 1 | 2015 HK International purchased the Lady May for 28 million |\n| 2 | pounds. |\n| 3 | No testimony adduced at the hearing established |\n| 4 | the source of funds to purchase the Lady May, but the |\n| 5 | uncontradicted testimony of Kwok's daughter, Mei Guo, |\n| 6 | established that Ms. Qu did not provide the funds to |\n| 7 | purchase the yacht. |\n| 8 | Consequently, a reasonable inference is that Kwok |\n| 9 | provided the funds to HK which were used to purchase the |\n| 10 | yacht. |\n| 11 | It is undisputed that Ms. Qu transferred the |\n| 12 | ownership of the Lady May to Kwok's daughter, Mei Guo, on or |\n| 13 | about June 17, 2017 for \\$1 or no consideration. |\n| 14 | Ms. Guo ultimately transferred ownership of the |\n| 15 | Lady May to the current title holder, HK USA.
Ms. Guo |\n| 16 | further avers that she's the sole owner of HK USA, although |\n| 17 | all of the multi-million dollar annual expenses for the Lady |\n| 18 | May, including, fuel, maintenance and the captain and crew |\n| 19 | are paid by Golden Spring (New York) Ltd. |\n| 20 | Ms. Guo acknowledged that she was aware of both |\n| 21 | this court's September 30, 2020 restraining order and this |\n| 22 | court's subsequent March 16, 2021 order directing that the |\n| 23 | Lady May be returned to the court's jurisdiction. |\n| 24 | Justice Ostrager furthers stated on page 8 of his |\n| 25 | decision that Kwok has much more than a beneficial interest |\n| | |\n\n| | Case 22-50073
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85 |\n| 1 | in the Lady May.
Not only does he control the yacht, it |\n| 2 | appears he provided the funds to purchase it and he is the |\n| 3 | person who principally enjoys the use of the yacht. |\n| 4 | Justice Ostrager then says on page 9, the evidence |\n| 5 | clearly and convincingly demonstrates that Kwok holds a |\n| 6 | beneficial interest in and controls the Lady May. |\n| 7 | The court finds Ms. Guo's testimony was not only |\n| 8 | internally inconsistent and dissembling, but also |\n| 9 | significantly undermined by the Captains Heaslop and Ivanov |\n| 10 | and Mr. Stockil, who stated they have never taken yacht |\n| 11 | related direction from Ms. Guo in the four and a half years |\n| 12 | that she directly or indirectly held title to the yacht. |\n| 13 | So the court finds for the reasons that have been |\n| 14 | stated already on the record and with regard to the |\n| 15 | statements in Justice -- and findings in Justice Ostrager's |\n| 16 | opinion that the first factor of collateral estopped that |\n| 17 | the identical issue necessarily was decided in the prior |\n| 18 | action and is decisive of the present action has been met. |\n| 19 | The court also finds that it's clear from New York |\n| 20 | law when there is an appeal pending, the ruling that is on |\n| 21 | appeal can have collateral estoppel effect and that the |\n| 22 | cases cited by HK to attempt to argue that there is no |\n| 23 | collateral estoppel effect are not applicable and are not |\n| 24 | persuasive in this case. |\n| 25 | With regard to the second factor, the party to be |\n\n| | Case 22-50073
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86 |\n| 1 | preluded from relitigating the issue had a full and fair |\n| 2 | opportunity to litigate the issue in the prior action. |\n| 3 | All -- both parties agree -- the Chapter 11 |\n| 4 | trustee and HK International and Mei Guo, that HK and Mei |\n| 5 | Guo were not parties to the PAX litigation before Justice |\n| 6 | Ostrager.
And the court finds that to be true, that they |\n| 7 | were not parties. |\n| 8 | With regard to the factors, the full and fair |\n| 9 | opportunity to litigate factors, there are, again, two parts |\n| 10 | to the factor.
The privity with the party against whom the |\n| 11 | judgment has been rendered, the interests aligned test, that |\n| 12 | we've address already this morning during oral argument and |\n| 13 | the realities of the litigation and the opportunity to fully |\n| 14 | and fairly litigate that litigation. |\n| 15 | With regard to this prong of the test, the court |\n| 16 | notes the case of Schwartz vs. Public Administrator of the |\n| 17 | Bronx, which established the modern rule of collateral |\n| 18 | estoppel and it states unequivocally that it is a non |\n| 19 | movant's burden to prove lack of full faith and opportunity |\n| 20 | should the movant prove identity of the issues. |\n| 21 | And in this -- I've already found that the trustee |\n| 22 | has proved the identity of the issue and under |\n| 23 | (indiscernible)
this burden remains on the non-movant, |\n| 24 | although the trustee must make an initial showing, which the |\n| 25 | court has found that the trustee has done. |\n\n| | Case 22-50073 | Doc 1644 | Filed 04/10/23 | Entered 04/10/23 10:57:36 | Page 87 of |\n|--|---------------|----------|----------------|---------------------------|------------|\n|--|---------------|----------|----------------|---------------------------|------------|\n\n| | Case 22-50073
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87 |\n| 1 | So, therefore, HK USA and Mei Guo have the burden |\n| 2 | in this case, under this factor, to prove a lack of full and |\n| 3 | fair opportunity to litigate the issue that was the -- the |\n| 4 | identical issues that was necessarily decided in the prior |\n| 5 | action and is decisive in this action. |\n| 6 | The court finds that HK USA and Mei Guo have not |\n| 7 | met their burden with regard to the second factor.
HK |\n| 8 | argues that Mr. Kwok took the Fifth Amendment, or invoked |\n| 9 | his right against self incrimination, and that does not make |\n| 10 | him in privity with HK USA and Mei Guo. |\n| 11 | However, Mr. Kwok argued, as noted by the court |\n| 12 | this morning during questioning of HK's counsel, that Mr. |\n| 13 | Kwok filed documents and pleadings in the New York |\n| 14 | litigation, asserting that HK owned the boat -- the yacht. |\n| 15 | And that in so doing he was aligning his interests with the |\n| 16 | interests of HK USA and Mei Guo. |\n| 17 | As noted, both parties argued strenuously in front |\n| 18 | of Justice Ostrager that HK USA was the owner of the boat |\n| 19 | and both parties wanted that finding to be made by the New |\n| 20 | York court so that the yacht would be outside of the reach |\n| 21 | of PAX as part of its post-judgment proceedings. |\n| 22 | In addition, HK USA made arguments in their papers |\n| 23 | and in oral argument this morning that talks about -- that |\n\n says that just because the -- Ms. Guo and Mr. Kwok are father and daughter, that there can't be any privity because\n\n| | Case 22-50073
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88 |\n| 1 | of that relationship. |\n| 2 | But that's not what the trustee argued in |\n| 3 | connection with this element.
The trustee was not arguing |\n| 4 | just because Ms. Guo and Mr. Kwok are father and daughter. |\n| 5 | That equals privity. |\n| 6 | The argument was much broader than that by the |\n| 7 | trustee and supports a finding that there is an alignment of |\n| 8 | interest and there was an alignment of interest between Ms. |\n| 9 | Guo, HK USA and Mr. Kwok at the time that the Justice |\n| 10 | Ostrager decision was issued on February 9, 2022 and prior |\n| 11 | to that time, that is what Justice Ostrager found, because |\n| 12 | they both -- both sides, both the father and the daughter |\n| 13 | though -- individually and through the corporate entities |\n| 14 | wanted to keep the Lady May out of the reach of PAX. |\n| 15 | With regard to the second part of the full and |\n| 16 | fair opportunity to litigate prong, the cases in New York |\n| 17 | and that are recognized applying this law -- the law under |\n| 18 | New York law with regard to collateral estoppel say that the |\n| 19 | court needs to look at the realities of the litigation. |\n| 20 | And the reality of the litigation in New York |\n| 21 | State Court is that as early as September 2020, Justice |\n| 22 | Ostrager was issuing temporary restraining orders against |\n| 23 | both Mr. Kwok and the record owners of the Lady May. |\n| 24 | There is nothing in the record before this court |\n| 25 | that demonstrates that HK USA or Mei Guo sought to vacate, |\n| | |\n\n| | Case 22-50073
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89 |\n| 1 | modify or set aside any of those temporary restraining |\n| 2 | orders. |\n| 3 | The record in this court through Justice |\n| 4 | Ostrager's opinion demonstrates that Mei Guo was aware of |\n| 5 | the temporary restraining orders that were issued in |\n| 6 | September, 2020 and October, 2020 and that, again, there's |\n| 7 | nothing in the record to indicate that there was any attempt |\n| 8 | to set aside those restraining orders. |\n| 9 | In addition, the record in this court establishes |\n| 10 | that in July of 2021 Attorney Vartan filed an affidavit in |\n| 11 | opposition to PAX's motion for a final order of contempt and |\n| 12 | in that declaration -- affidavit, Attorney Vartan stated |\n| 13 | that he was filing this document on behalf of HK |\n| 14 | International because the property interests of HK |\n| 15 | International were being affected by the final contempt |\n| 16 | motion. |\n| 17 | Now the parties have argued and HK and Mei Guo's |\n| 18 | counsel have admitted several times on the record that HK |\n| 19 | USA and Mei Guo are one and the same. |\n| 20 | And so with regard to the issue of civil contempt |\n| 21 | as to Kwok and HK USA asserting in July of 2021 that their |\n| 22 | property rights were being affected by the final contempt |\n| 23 | motion, also established that they had a full and fair |\n| 24 | opportunity to litigate and chose not to in the New York |\n| 25 | action. |\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 90 of\n\n| 103 |\n|-----|\n|-----|\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023
90 |\n|----|----------------------------------------------------------------|\n| 1 | Finally, as I may have already said, but I will |\n| 2 | say this again, Justice Ostrager's ruling was not a |\n| 3 | preliminary ruling, although HK USA argued that it was and |\n| 4 | that the appellate court's ruling might be ambiguous and I |\n| 5 | find that that argument is not persuasive. |\n| 6 | The appellate court's ruling was very clear.
The |\n| 7 | appellate court said -- I have to find it.
I think it's |\n| 8 | Exhibit 15, but maybe I'm wrong. It might be Exhibit 7.
No. |\n| 9 | Give one moment, if you'll bear with me. |\n| 10 | Yes, the appellate court said in Exhibit 15, |\n| 11 | that's attached to the Bassett declaration, ECF 150, that |\n| 12 | the motion court is instructed to proceed with an |\n| 13 | evidentiary hearing to resolve a dispute as to ownership and |\n| 14 | control of the yacht, and to assess appropriate penalties. |\n| 15 | So this court finds that there was no ambiguity in |\n| 16 | what the appellate court was directing Justice Ostrager to |\n| 17 | do and that Justice Ostrager did so when he conducted a |\n| 18 | hearing, an evidentiary hearing on the ownership of the Lady |\n| 19 | May and ruled on the ownership on February 9th, 2022. |\n| 20 | With regard to any further arguments about not |\n| 21 | being able to appeal or participate in the litigation in the |\n| 22 | Connecticut -- I'm sorry, in the New York State Court, I |\n| 23 | find that the arguments that HK advanced are not persuasive. |\n| 24 | New York law provides that if a party is in |\n| 25 | privity with another party it does not matter who controls |\n| | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 91 the appeal and that different things could have occurred for HK to exercise its rights in that New York State litigation and it chose not to do so. However, it came before this court voluntarily when it was not a debtor and it had sought to stop PAX from obtaining relief from the stay to go back to the New York State court to continue with the action in front of Justice Ostrager. And HK affirmatively decided in this case, in this bankruptcy court, to bring a cause of action to determine the ownership of the Lady May even though that determination had already been made by Justice Ostrager in the New York court action. The arguments that Attorney Vartan was only involved for a little bit and was only there at a three-hour hearing are also unpersuasive. As noted on the record, Attorney Vartan filed a declaration affirmation in July of 2021. His clients knew of the temporary restraining orders back to September of 2020. And as noted, Attorney Vartan's filing says that the action in the New York State court with regard to PAX's attempts to execute on a judgment and seize assets were affecting his clients right and property rights with regard to the yacht. So for all of those reasons the court grants the Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 91 of\n\n| | Case 22-50073
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92 |\n| 1 | motion for summary on the first counterclaim that is set |\n| 2 | forth in ECF 36. |\n| 3 | It is likely that this ruling will be supplemented |\n| 4 | by a written ruling and that may take a day or so, or |\n| 5 | probably more than that because we have other matters to |\n| 6 | address in other cases this week. |\n| 7 | But this ruling is so ordered as of 2:55 p.m. on |\n| 8 | March 27th, 2023, even if a written ruling does not issue |\n| 9 | for a few days. |\n| 10 | Mr. Despins, your proposed order that was |\n| 11 | submitted -- I have to find it. I have here it here |\n| 12 | somewhere. |\n| 13 | MR. DESPINS:
I have extra copies, Your Honor. |\n| 14 | THE COURT:
I have it.
Thank you. I just need to |\n| 15 | find it.
Here it is. |\n| 16 | (Pause.) |\n| 17 | MR. DESPINS:
We probably should add something |\n| 18 | that says and for the reasons stated on the record by the |\n| 19 | court, or something like that.
We don't have that. |\n| 20 | THE COURT:
Again, I still may supplement this |\n| 21 | with a written decision, but this order is going to enter |\n| 22 | effective, as I said, 2:55 p.m. on March 27th, or whatever |\n| 23 | time I said. I think that's the time I said. |\n| 24 | And the -- opposing counsel has a copy of the |\n| 25 | order.
Mr. Despins -- |\n| | |\n\n| | Case 22-50073
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93 | | |\n| 1 | MS. WERNICK:
It was electronically filed. | | |\n| 2 | THE COURT:
Yes.
Do you have the -- did you give | | |\n| 3 | them the version that also has the -- you know, the redline | | |\n| 4 | or whatever. | | |\n| 5 | MR. DESPINS:
It should be the last few pages. | | |\n| 6 | THE COURT:
The last few pages. | | |\n| 7 | MR. DESPINS:
12 out of 13. | | |\n| 8 | THE COURT:
Page 12.
I mean, page 11 is the | | |\n| 9 | caption, but then you turn to page 12. | | |\n| 10 | Do you both see where I am on page 12? | | |\n| 11 | MR. DESPINS:
Yes, Your Honor. | | |\n| 12 | THE COURT:
Okay.
Mr. Despins, so this is -- I'm | | |\n| 13 | going to make a few changes to this order but it's because | | |\n| 14 | what I think the order should say.
And they're not | | |\n| 15 | substantial but they're -- they -- my changes are using the | | |\n| 16 | language from the statute, okay?
From 541 and 542, all | | |\n| 17 | right? | | |\n| 18 | So in addition to the fact that probably above | | |\n| 19 | paragraph one, before it says it is hereby ordered, it will | | |\n| 20 | probably say for the reasons stated on the record, okay? | | |\n| 21 | And then there'll be some -- I'll say effective as of | | |\n| 22 | whatever time I said on the record, which I think was 2:55 | | |\n| 23 | but the courtroom deputy will help me with that. | | |\n| 24 | Paragraph 3, the second sentence.
In particular | | |\n| 25 | the order should read -- it should say in particular the | | |\n| | | | |\n\n| | Case 22-50073
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94 |\n| 1 | Lady May is property of the Chapter 11 estate of Ho Wan Kwok |\n| 2 | pursuant to Section 541 -- 11 USC Section 541. |\n| 3 | Furthermore, pursuant to 11 USC Section 542, I |\n| 4 | think you defined -- I think -- well, maybe you didn't yet. |\n| 5 | Let me see. |\n| 6 | So then pursuant to Section 542, HK USA and Mei |\n| 7 | Guo shall deliver to the trustee the Lady May and it will |\n| 8 | say, who is the trustee of the estate for Ho Wan Kwok, all |\n| 9 | right? |\n| 10 | And on paragraph 4 -- I don't have to make any |\n| 11 | changes. Paragraph 5, the second line, instead of surrender, |\n| 12 | shall deliver.
The statute requires delivery, not |\n| 13 | surrender.
And delivery, in my opinion is more of an |\n| 14 | affirmative -- an act than surrendering, okay. |\n| 15 | And then I will add some -- and all the rest of it |\n| 16 | I have no changes to, except that I'll add something about |\n| 17 | the time. |\n| 18 | Does anyone have any questions? |\n| 19 | MR. DESPINS:
Yes, Your Honor.
This is plumbing |\n| 20 | and I'm not anxious to have my name on any order but for |\n| 21 | insurance purposes and for registration purposes, if we just |\n| 22 | say the estate of Ho Wan Kwok, that's going to make it |\n| 23 | harder mechanically, as opposed to saying in my name as |\n| 24 | trustee for the estate of Ho Wan Kwok. |\n| 25 | THE COURT:
Okay.
So tell me what you want it to |\n| | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 95 say then. MR. DESPINS: Well, I think we -- in particular the sole owner of the Lady May is Luc Despins, as the Chapter 11 Trustee for the estate of Ho Wan Kwok. So we already have that language there. I think it's important to have an individual name so that he can -- also we can keep property of the estate of Ho Wan Kwok, but the sole owner for purpose -- I think it would be better to have my name there, as trustee, of course. THE COURT: That's going to make it easier for you to obtain insurance? Is that -- MR. DESPINS: Also to register the boat wherever we need to register it. THE COURT: Counsel, do you have any response to Trustee Despin's request with regard to the language, in particular the sole owner of the Lady May is? MR. MORIARTY: No, Your Honor. The only thing that I would point out is in paragraph 5 it says and all assistance reasonably necessary. We have no intention of doing anything to prevent the trustee from -- THE COURT: I'm sorry. I couldn't hear you, Attorney Moriarty. Can you say that again? MR. MORIARTY: Sure. So paragraph 5 says that it require HK and Ms. Guo to deliver the Lady May and provide Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 95 of\n\n| | Case 22-50073
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96 |\n| 1 | any and all assistance reasonably necessary.
We will |\n| 2 | provide the trustee with the assistance that we can provide. |\n| 3 | If there's something that we can't do, obviously, |\n| 4 | we can't do it and I don't want to be in a situation where |\n| 5 | we're being asked to do something we can't do. |\n| 6 | I've been working with the trustee over the last |\n| 7 | few days to provide him information in case did grant the |\n| 8 | summary judgment motion. I have some more information I'll |\n| 9 | provide him today.
So we will work with him. I just don't |\n| 10 | know what all assistance reasonably necessary means. |\n| 11 | THE COURT:
Well, I think when -- if there's a |\n| 12 | dispute, you'll have to bring it to the court -- |\n| 13 | MR. MORIARTY:
Thank you, Your Honor. |\n| 14 | THE COURT:
-- unfortunately. |\n| 15 | MR. MORIARTY:
I wanted to avoid that but we will |\n| 16 | do our best. |\n| 17 | THE COURT:
I don't -- I'm not certain either, but |\n| 18 | I have an idea. But that doesn't mean my idea is correct. |\n| 19 | MR. MORIARTY:
I appreciate it.
Thank you. |\n| 20 | THE COURT:
All right. |\n| 21 | MR. FIANO:
Your Honor, if I may, on behalf of the |\n| 22 | non-party -- |\n| 23 | THE COURT:
Would you just come forward, Attorney |\n| 24 | Fiano -- |\n| 25 | MR. FIANO:
Yes. |\n| | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 97 THE COURT: -- because we won't be able to hear you. MR. FIANO: Yes. On behalf of the non -- THE COURT: Come right up here to the microphone, please. MR. FIANO: On behalf of the non-party marina, it would also facilitate in dealing with my client if, in fact, the order was in the name of the trustee rather than just simply the debtor. THE COURT: That's fine. I appreciate that. And that's what we're going to do now. We'll keep that -- but I do want to make the other citations to the other sections of the code, because it should have a citation to the code, okay? All right. Is there anything further we need to accomplish this afternoon? MR. DESPINS: Yes, Your Honor. Apologies, but while we were in court we filed a complaint with respect to an entity called Greenwich Land, and also the debtor's wife. This is relating to the Greenwich house. It's a complaint for a declaration of alter ego, but we are seeking immediate ancillary relief in the form of a PJR and also injunction. Of course, Your Honor hasn't seen those because you were on the bench. I think it was Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 97 of\n\n| | Case 22-50073
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98 |\n| 1 | filed at 2:15 or something like that. |\n| 2 | And so that you know, we've put in a feature where |\n| 3 | the court would enter a PJR -- of course, you'll do that if |\n| 4 | you think it's appropriate, on an ex-parte basis, but with a |\n| 5 | feature that the defendant's counsel could come to court any |\n| 6 | time they feel it's appropriate and they have sufficient |\n| 7 | time to basically force us to obtain a continued PJR and in |\n| 8 | that context the burden would remain on us. |\n| 9 | So, therefore, we would not gain any advantage |\n| 10 | with ex parte entry of the PJR but for the protection of the |\n| 11 | house. |\n| 12 | And basically we're in a mode now where because of |\n| 13 | the criminal indictment and other things, things can move |\n| 14 | really fast. Mortgages can be granted, transfers can occur. |\n| 15 | Yes, the house cannot move itself. I understand that. |\n| 16 | But this entity has already disregarded a notice - |\n| 17 | - it's not a lis pendens notice, but a notice that was given |\n| 18 | by PAX pre-bankruptcy but was effective for one year after |\n| 19 | the notice that would preclude them from selling assets. |\n| 20 | And, in fact, an entity did sell the other |\n| 21 | property, the other real estate on Ferncliff Drive.
And we |\n| 22 | don't know what happened to the proceeds. |\n| 23 | So the point is that we know that the debtor has |\n| 24 | disregarded court orders.
We know that in spades.
We know |\n| 25 | that he's been held in contempt in many places. |\n| | |\n\nCase 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 99 of\n\n| | Ho Wan Kwok/HK USA v. Despins - March 27, 2023 | 99 |\n|---|-----------------------------------------------------------|----|\n| 1 | This entity itself disregarded that notice from | |\n| 2 | PAX and actually that happened during the Chapter 11 case | |\n| 3 | last summer without any notice to anyone. | |\n| | | |\n\n And on top of that we know of other things. For example, Your Honor knows this from reviewing the deposition of the debtor's daughter where she claims to have sold a \\$10 million aircraft and she just doesn't know who's holding the \\$10 million right now.\n\n So the point is we're in a dangerous phase right now from the point of your protecting estate assets and we need to act with all due diligence and that's why we're moving so quickly on this.\n\n We don't want to prejudice the rights of counsel for Greenwich Land and the debtor's wife and that's why we put in a provision that says you can come back at any time that you choose -- well, on reasonable notice to us, to undue this and at that hearing the burden will remain on the trustee to prove to the court that the continued PJR or the continued preliminary injunction should remain in place.\n\n We believe that that kind of removes the -- I wouldn't use the sting, but the point is the inconvenience caused by an ex-parte filing.\n\n But we need to move on an ex-parte basis because there's a real risk that bad things could happen to these assets. And also they have a bank account and that needs to\n\n| | Case 22-50073
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100 |\n| 1 | be protected as well. |\n| 2 | We believe that there's plenty of evidence and, |\n| 3 | again, because I'm proceeding without counsel for that |\n| 4 | company being there. I want to be judicious about that, but |\n| 5 | we -- you know, the owner of that entity is the debtor's |\n| 6 | wife.
We deposed her.
She knew nothing about this company. |\n| 7 | She didn't even know -- we asked her -- we showed her five |\n| 8 | pictures of different houses around Ferncliff Road, |\n| 9 | including the one she owned and asked her to pick which one |\n| 10 | was Ferncliff.
Could not do that. |\n| 11 | So it's clear, and we have evidence from the |\n| 12 | brokers and from the lawyers regarding these transactions |\n| 13 | that Mr. Kwok was directing all these purchases and that |\n| 14 | they were paid by Mr. Kwok or by companies related to Mr. |\n| 15 | Kwok. |\n| 16 | So I hate to hit you with this. You have not read |\n| 17 | anything. I just wanted to alert you to it, alert you to the |\n| 18 | fact that we're seeking ex parte immediate entry of PJR so |\n| 19 | we can go and file that on house, again with that feature |\n| 20 | that it can be removed by the court upon motion of the |\n| 21 | defendants at any time, and that in that context the burden |\n| 22 | will remain on us as if a PJR had never been issued. |\n| 23 | So we're not trying to gain any advantage there |\n| 24 | but we need to protect the estate's assets, Your Honor. So I |\n| 25 | don't know how you want to proceed from here.
Obviously, |\n| | |\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 101 you haven't seen anything so, therefore, I don't know how you want to proceed. THE COURT: Does Greenwich Land have an appearing counsel? MR. DESPINS: Yes. Mr. Goldstein. I forget his first name. THE COURT: Evan Goldstein. He was here last week. MR. DESPINS: Correct. THE COURT: Okay. MR. DESPINS: Correct. THE COURT: And he represents Mr. Kwok's wife as well, correct? MR. DESPINS: Correct. And he has notice now through the ECF of the filing of the complaint. We instructed our team to send him immediately by email unredacted copies of these documents, so he is on notice at this point. THE COURT: Is the complaint redacted? Is that what you're telling me? MR. DESPINS: There are portions of the complaint that are redacted, but he is seeing -- THE COURT: No, I'm just trying to understand -- MR. DESPINS: Yes, it is -- because, again, it's the protective order where the deposition of some parties Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 101 of\n\nHo Wan Kwok/HK USA v. Despins - March 27, 2023 102 were designated as highly confidential, or confidential where we don't think they are, but we have to respect that until that veil has been lifted. THE COURT: All right. Well, as you correctly noted, I have not seen anything yet, so I don't know what I'm going to do until I see that. MR. DESPINS: Thank you, Your Honor. THE COURT: Thank you. Is there anything else we need to address this afternoon? MR. LINSEY: Just a minor procedural issue, Your Honor. Patrick Linsey for the trustee. Last night we filed a motion for entry of an order further extending the deadline for removal actions. We did not file a motion to expedite. The existing deadline expires on April 5th and under the local rules governing motions for extension of time I thought that would be sufficient for the court to consider the order. However, if you'd like us to file a motion to expedite or a motion to seek a hearing, we're happy to do that. But otherwise I just wanted to put that deadline on the court's radar. That is at ECF No. 1601 in the main case. THE COURT: Okay. MR. LINSEY: Thank you, Your Honor. Case 22-50073 Doc 1644 Filed 04/10/23 Entered 04/10/23 10:57:36 Page 102 of\n\n| Case 22-50073
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103 | |\n| 1 | THE COURT:
Thank you.
All right.
Anything | |\n| 2 | further this afternoon? | |\n| 3 | All right.
Court is adjourned. | |\n| 4 | (Proceedings concluded at 3:10 p.m.) | |\n| 5 | | |\n| 6 | I, CHRISTINE FIORE, Certified Electronic Court | |\n| 7 | Reporter and Transcriber, certify that the foregoing is a | |\n| 8 | correct transcript from the official electronic sound | |\n| 9 | recording of the proceedings in the above-entitled matter. | |\n| 10 | | |\n| 11 | | |\n| 12 | April 6, 2023 | |\n| 13 | Christine Fiore, CERT | |\n| 14 | | |\n| 15 | | |\n| 16 | | |\n| 17 | | |\n| 18 | | |\n| 19 | | |\n| 20 | | |\n| 21 | | |\n| 22 | | |\n| 23 | | |\n| 24 | | |\n| | | |\n| | Fiore Reporting and Transcription Service, Inc. | |","body_zh":null,"key_entities":["Kwok","Despins","Ho Wan Kwok","Guo","CIPA","Je","Paul Hastings","Luc Despins","CCP"],"ecf_references":[{"doc_number":36,"court":"CTB"},{"doc_number":146,"court":"CTB"},{"doc_number":150,"court":"CTB"},{"doc_number":160,"court":"CTB"},{"doc_number":1601,"court":"CTB"}],"word_count":31120,"status":"published","published_at":"2023-04-10 00:00:00","created_at":"2023-04-10","updated_at":"2026-07-07 07:53:56"}