---
type: court_doc
id: "court_ctb_1683_0"
court: "CTB"
case_no: "22-50073"
doc_number: 1683
doc_type: "ORDER"
filed_date: "2023-04-20"
lang: "zh"
url: "https://mubeitech.com/court/court_ctb_1683_0"
json_url: "https://mubeitech.com/api/court/court_ctb_1683_0"
---
# UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT BRIDGEPORT DIVISION In Re \* Case No. 22-50073 (JAM) \* HO WAN KW
> 原始法庭文件为英文；下方为英文全文，顶部为中文摘要。
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, \* \* Plaintiff, \* \* v. \* \* LUC A. DESPINS, \* \* Defendant. \* \* LUC A. DESPINS, Adv. Proc. No. 23-05005 \* Plaintiff, \* Bridgeport, Connecticut \* April 11, 2023 v. \* \* GREENWICH LAND, LLC, et al., \* \* Defendants. \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* TRANSCRIPT OF MOTION FOR ORDER AUTHORIZING AGREEMENTS RE LADY MAY; MOTION TO DISMISS ADVERSARY PROCEEDING AS TO COUNTERCLAIMS TWO, THREE, FOUR and FIVE; EMERGENCY EX PARTE MOTION FOR TRO AND PRELIMINARY INJUNCTION; MOTION TO CONTINUE/RESCHEDULE HEARING BEFORE THE HONORABLE JULIE A. MANNING UNITED STATES BANKRUPTCY JUDGE 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**
APPEARANCES: For the Debtor and STEPHEN KINDSETH, ESQ. Plaintiff, HK Zeisler & Zeisler, PC International and 10 Middle Street, 15th Floor Mei Guo: Bridgeport, CT 06604 For the Plaintiff, SAM DELLA FERA, JR., ESQ. HK International and Chiesa Shahinian & Mei Guo: Giantomasi, PC One Boland Drive West Orange, NJ 07052 For the Defendant, G. ALEXANDER BONGARTZ, ESQ. Luc A. Despins, Chapter 11 NICHOLAS BASSETT, ESQ. Trustee: Paul Hastings, LLP 200 Park Avenue New York, NY 10166 For the Chapter 11 PATRICK R. LINSEY, ESQ. Trustee: Neubert Pepe & Monteith, PC 195 Church Street New Haven, CT 06510 Chapter 11 Trustee: LUC A. DESPINS, ESQ. Paul Hastings, LLP 200 Park Avenue New York, NY 10166 For the U.S. Trustee: HOLLEY L. CLAIBORN, ESQ. Office of the United States Trustee The Giaimo Federal Building 150 Court Street, Room 302 New Haven, CT 06510 For Greenwich Land, LLC CHRISTOPHER J. MAJOR, ESQ. and Hing Chi Ngok: Meister Seelig & Fein LLP 125 Park Avenue New York, NY 10017
2
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Ho Wan Kwok - April 11, 2023 3 (Proceedings commenced at 3:00 p.m.) THE COURTROOM DEPUTY: No. 22-5003. I'm sorry. Case No. 22-50073, Ho Wan Kwok. Adversary No. 22-5003, HK International Funds Investment Limited vs. Despins. 23-5005, Despins vs. Greenwich Land, LLC. THE COURT: Okay. Good afternoon. If we could have appearances for the record, please, starting with the Chapter 11 Trustee. MR. DESPINS: Good afternoon, Your Honor. Luc Despins, Chapter 11 Trustee. THE COURT: Good afternoon. MR. BASSETT: Good afternoon, Your Honor. Nic Bassett from Paul Hastings on behalf of the Chapter 11 Trustee. THE COURT: Good afternoon. MR. LINSEY: Afternoon, Your Honor. Patrick Linsey, Connecticut counsel for the trustee. THE COURT: Good afternoon. MR. BONGARTZ: Good afternoon, Your Honor. Alex Bongartz of Paul Hastings, also for the Chapter 11 Trustee. THE COURT: Good afternoon. MS. CLAIBORN: Good afternoon, Your Honor. Holley Claiborn for the U.S. Trustee. MR. DELLA FERA: Good afternoon, Your Honor. Sam Della Fera, Chiesa Shahinian & Giantomaso, for HK
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Ho Wan Kwok - April 11, 2023 4 International Funds Investments USA Limited, LLC and Mei Guo. THE COURT: Good afternoon. MR. KINDSETH: Stephen Kindseth, Zeisler & Zeisler, also for HK International and Mei Guo. THE COURT: Good afternoon. MR. MAJOR: Good afternoon, Your Honor. Chris Major from Meister Seelig & Fein. We represent Greenwich Land, LLC and Hing Chi Ngok in the adversary proceeding, 23-05005. THE COURT: Good afternoon. MR. MAJOR: Good afternoon, Your Honor. THE COURT: Have I taken everyone's appearances? THE CLERK: Your Honor, the gentleman to the right with the glasses, I did not hear his name. I'm sorry. THE COURT: Oh, I'm sorry. MR. BONGARTZ: That's okay. THE COURT: Counsel? MR. BONGARTZ: It's -- THE CLERK: You did say it, but I just didn't hear it. MR. BONGARTZ: No. It's okay. It's Alex Bongartz of Paul Hastings. THE CLERK: Okay. Thank you. THE COURT: From Paul Hastings. Okay?
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| 1 | THE CLERK:
Yes. |
| 2 | THE COURT:
All right.
We have a few matters on |
| 3 | the calendar, and it seems to me -- unless, Trustee Despins, |
| 4 | you have a different view or anyone else has a different |
| 5 | view -- that we should take up the motion for order |
| 6 | authorizing agreements regarding the Lady May first. |
| 7 | MR. DESPINS:
Sure, Your Honor. |
| 8 | THE COURT:
It doesn't appear to be -- it -- I |
| 9 | didn't see any opposition to it anyway. |
| 10 | MR. DESPINS:
You're correct, Your Honor. |
| 11 | Mr. Bongartz is going to handle that aspect, Your Honor. |
| 12 | THE COURT:
Okay.
Thank you. |
| 13 | Mr. Bongartz? |
| 14 | MR. BONGARTZ:
Yes.
Good afternoon, Your Honor. |
| 15 | Again, Alex Bongartz of Paul Hastings for the Chapter 11 |
| 16 | Trustee.
We're here on the motion to authorize the trustee |
| 17 | to enter into three yacht-related agreements.
They are, |
| 18 | specifically, a yacht management agreement with YACHTZOO, a |
| 19 | crew provision agreement with FDS 46 Crew Services |
| 20 | (phonetic), and a dock space license agreement with BLD |
| 21 | Waterfront.
I'll just refer them to as the Bridgeport |
| 22 | Marina. |
| 23 | Also, to be clear, in addition to requesting |
| 24 | authority to enter into the agreements, we also, obviously |
| 25 | are requesting authority to perform under these agreements |
| | |
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Ho Wan Kwok - April 11, 2023 6 and in connection with them incur and pay reasonable operational expenses to the extent necessary to maintain and operate the Lady May. We can proceed in a different form, however Your Honor prefers. I could walk you through each of the three agreements and then address any questions you may have. I should note up front, as you already noted, there's no filed objection. And we've also -- have confirmation from the Committee that they are not objecting. But that said, we've had informal discussions with the U.S. Trustee. We understand that they'll have a handful of concerns. We have tried to resolve them as best as we can, and we have actually made modifications to the proposed order and some of the agreements. And I'm happy to walk Your Honor through exactly those changes. But my understanding is that not all of the trustee's issues have been resolved. And, accordingly, there's going to be some argument on those points. THE COURT: All right. Well, as far as the management agreement and the crew provision agreement and the dockage agreement, I don't have any questions with regard to the agreements, per se. MR. BONGARTZ: Okay. THE COURT: But you -- I think it might make some sense -- and, Attorney Claiborn, obviously I did see you
Ho Wan Kwok - April 11, 2023 7 stand up before, so I know that the United States Trustee's Office wishes to be heard on this issue. But it might make some sense for me to understand what the issues are that the U.S. Trustee's Office is concerned about in the proposed order. And you could start off by telling me what issues have been raised that have been resolved in -- MR. BONGARTZ: Okay. THE COURT: -- the proposed order. So do you want -- so I have the order, I believe, in front of me the proposed order that was attached to ECF 1637. So is that the order you are working off of with the United States Trustee's Office? MR. BONGARTZ: Correct. And we have reached agreement on specific language concerning what's defined as the vessel account that would be set up under the agreement. THE COURT: Okay. MR. BONGARTZ: And I have copies of a revised proposed order blacklined to show what that language is. May I approach the bench and hand you -- THE COURT: Yes, please. MR. BONGARTZ: Thank you. THE COURT: Thank you. (Counsel confer) MR. BONGARTZ: Okay. So this change actually -- Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 7 of 106
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Ho Wan Kwok - April 11, 2023 8 as I noted, concerns the vessel account. And the U.S. Trustee had raised concerns about the funds in those accounts technically being -- at least under the original structure being estate funds and being held in a foreign bank with YACHTZOO having the ability to access the account and pay expenses.
And we have reached out to YACHTZOO, and they have agreed to modify that structure such that instead of us funding the account and the monies in the account being -- continuing to be estate funds, YACHTZOO will issue at the beginning of each month an invoice based on the projected amount of services and expenses incurred and to be incurred. And at the end of the month, there'll be a reconciliation. If there's any surplus, it'll be returned to the estate or, if we so choose, applied against the next month's expenses. Or if there's a shortfall, obviously the estate will have to make up that shortfall.
So the -- and in connection with that, we've also clarified that we're not funding future expenses or future fees. That had never been our intention. This was language that was in there from their form agreement. So it had always been our intention to just pay on a month-to-month basis the expenses that arise under that agreement.
So I don't know if I -- Your Honor, if you want me to read the specific language into the record, I'm happy to
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Ho Wan Kwok - April 11, 2023 9 take a break -- THE COURT: No. You don't need to do that, counsel. Thank you. MR. BONGARTZ: Okay. THE COURT: My only question is -- MR. BONGARTZ: Uh-huh. THE COURT: I'm just looking at this for the first time as well. MR. BONGARTZ: Of course. THE COURT: So some of these terms, the vessel budget, that's defined in the motion, correct? MR. BONGARTZ: I don't think that's a defined term. Vessel is a defined term. That is the Lady May. THE COURT: Okay. MR. BONGARTZ: And budget is simply the month's -- THE COURT: Okay. That's fine. MR. BONGARTZ: Okay. THE COURT: Oh, but the vessel account is a defined term. I see. MR. BONGARTZ: Correct. THE COURT: Okay. MR. BONGARTZ: The vessel account is the new account that will be set up. Typically, it is set up in the name of the owner, but this is actually -- this is part of, you know, modifying this. This will not be an estate
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| 1 | account.
It will not be estate funds.
It's merely a -- an |
| 2 | administrative account that YACHTZOO will set up to |
| 3 | facilitate payments to the crew, for example salary, pay |
| 4 | insurance premiums, et cetera.
But we won't have control |
| 5 | over that account. |
| 6 | THE COURT:
So and, again, I'm sorry.
Just |
| 7 | looking at this, who has control over the vessel account? |
| 8 | MR. BONGARTZ:
It's YACHTZOO. |
| 9 | THE COURT:
And the account is located where? |
| 10 | MR. BONGARTZ:
It's with an entity called |
| 11 | Moneycorp.
That's a financial institution in Europe, based |
| 12 | out of Europe.
And the account is specifically located, I'm |
| 13 | told, in Gibraltar.
They have a branch there that |
| 14 | apparently specializes in maritime-related banking and |
| 15 | transfers.
So that's the reason for that location. |
| 16 | THE COURT:
And I don't -- I could be wrong, but |
| 17 | has anyone -- no one's filed an appearance on behalf of |
| 18 | YACHTZOO in the case yet.
Only the marina and different |
| 19 | parties in Connecticut, correct? |
| 20 | MR. BONGARTZ:
I believe that is correct. |
| 21 | THE COURT:
Counsel, what -- and, Attorney |
| 22 | Claiborn, because YACHTZOO has not filed an appearance in |
| 23 | this case, and I don't really have any -- you know, not that |
| 24 | I need to, but what happens if they don't do what they're |
| 25 | supposed to do in paragraph 3, right?
So what about if we |
| | |
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| 1 | say YACHTZOO has consented that it shall issue, right?
I |
| 2 | mean, you've got to have -- I think we need to have |
| 3 | something in here to -- |
| 4 | MR. BONGARTZ:
That's perfectly fine.
They have |
| 5 | confirmed by email to me that this language is acceptable to |
| 6 | them. |
| 7 | THE COURT:
All right. |
| 8 | MR. BONGARTZ:
So that is perfectly fine, Your |
| 9 | Honor. |
| 10 | THE COURT:
Attorney Claiborn, do you have any |
| 11 | problem with that? |
| 12 | MS. CLAIBORN:
No, Your Honor.
It's my |
| 13 | understanding that YACHTZOO is amenable to the changes we're |
| 14 | proposing and that they are on board with the language |
| 15 | specifically, so I don't think it's a problem to add their |
| 16 | consent to that language. |
| 17 | THE COURT:
And they're a signatory to the |
| 18 | management agreement, YACHTZOO? |
| 19 | MR. BONGARTZ:
Correct.
Yes. |
| 20 | THE COURT:
What about the crew provision and |
| 21 | dockage agreement?
Are they signatories to that agreement |
| 22 | as well -- |
| 23 | MR. BONGARTZ:
No. |
| 24 | THE COURT:
-- those agreements? |
| 25 | MR. BONGARTZ:
No.
Those are -- |
| | |
Ho Wan Kwok - April 11, 2023 12 THE COURT: Okay. MR. BONGARTZ: -- agreements between the estate and other parties. THE COURT: Okay. Okay. That's what I thought, but I want to make sure. Okay? (Counsel confer) MR. BONGARTZ: I also want to point out, we had mentioned this in our motion, but the agreement itself is -- any dispute arising out of the agreement is subject to the exclusive bankruptcy court jurisdiction here in this court. So I can point out that section in a second. THE COURT: Well -- MR. BONGARTZ: It's Section 15.2. THE COURT: Of the management agreement? MR. BONGARTZ: Correct. THE COURT: Okay. Okay. All right. So I see the new paragraph 3. That's what's agreed to, but there are still other issues? MR. BONGARTZ: Yes, Your Honor. And I don't want to be presumptuous to assume exactly what issues remain outstanding for the U.S. Trustee, but my understanding, based on email correspondence, is that the issues concern Section 9.2, which is the cap on the trustee's ability to recover if the manager is liable for an incident arising out of the agreement, the cap there being 2 million Euros. Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 12 of
Ho Wan Kwok - April 11, 2023 13 I should note, though, that the standard cap that we're -- that YACHTZOO had informed us that is typically in these agreements is 500,000 Euros. We actually negotiated an increase of that amount to \$2 million. We also, obviously, pushed to remove the cap altogether, but YACHTZOO was not able to accommodate that, because their own insurer would not allow an -- an uncapped liability. So that's issue -- as I understand it, issue number one. Issue number two concerns Section 9.5 which essentially is a carve out to any liability that may -- that we could assert against employees, agents, or manager of YACHTZOO. But I should note that this does not take away from our ability to hold the manager responsible, manager in this case, to be specific, YACHTZOO itself responsible. It just means that we cannot go after their employees, agents, or, lower case M manager. And then -- and this is the third item which I'm not sure if the U.S. Trustee is pursuing it, and then that is Section 5.3 which requires payments without setoff, counterclaim, et cetera. We believe that this is a standard provision under the -- and I'm not quite sure whether the changes we've made to the order regarding the monthly invoicing resolved the Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 13 of
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| 1 | U.S. Trustee's concern with respect to 5.3.
But, obviously, |
| 2 | I will let Ms. Claiborn speak for herself on those three |
| 3 | points.
Thank you. |
| 4 | THE COURT:
Okay.
Thank you. |
| 5 | MS. CLAIBORN:
Your Honor, Attorney Bongartz is |
| 6 | correct.
Those are the three sections that need further |
| 7 | discussion. |
| 8 | THE COURT:
Tell me the first section again.
I |
| 9 | didn't hear it clearly. |
| 10 | MS. CLAIBORN:
9.2, 9.5, and 5.3. |
| 11 | THE COURT:
I've got the other two.
Okay.
Go |
| 12 | ahead.
Section 9 -- so, Attorney Claiborn, please let me |
| 13 | know what is the U.S. Trustee's office with regard to -- |
| 14 | issue with regard to Section 9.2. |
| 15 | MS. CLAIBORN:
So 9.2 is a limitation on liability |
| 16 | that caps the exposure of YACHTZOO at \$2 million.
And the |
| 17 | U.S. Trustee generally opposes limitation on liability |
| 18 | clauses in professional contracts and agreements and |
| 19 | consistent with that has a problem with this particular one. |
| 20 | The scope of the services and the cost of |
| 21 | YACHTZOO's involvement in this case is discussed in the |
| 22 | motion, and the motion also talks about the fact that the |
| 23 | general maintenance costs of running this yacht and keeping |
| 24 | it in operating condition, you know, can span the cost of |
| 25 | \$100,000 to, I think, \$300,000 per month.
So against that |
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| 1 | backdrop, a limitation of liability that is only at \$2 |
| 2 | million is insufficient from the U.S. Trustee's point of |
| 3 | view. |
| 4 | The other issue is -- just is a practical one. |
| 5 | The estate is exposed if it cannot recover from others the |
| 6 | actual cost of whatever damage happens. |
| 7 | THE COURT:
So this is 9.5 you're talking about? |
| 8 | MS. CLAIBORN:
9.2 has the limitation of |
| 9 | liability. |
| 10 | THE COURT:
Right. |
| 11 | MS. CLAIBORN:
9.5 and 5.3 are sort of companion |
| 12 | concepts to that idea that we're limiting remedies.
5.3 |
| 13 | limits remedies on the part of the trustee, and it waives |
| 14 | the right to assert setoff, counterclaim, condition and |
| 15 | qualification and response to payments.
So if there were a |
| 16 | payment dispute or there was a conduct dispute, those sorts |
| 17 | of remedies would not be available to the trustee. |
| 18 | And then 9.5 speaks to protections that are |
| 19 | afforded to employees or agents or managers of YACHTZOO and |
| 20 | gives up rights to go against those. |
| 21 | It does at the very end of 9.5 provide for the |
| 22 | manager being responsible for those sorts of bad acts that |
| 23 | are in the nature of gross negligence or willful misconduct. |
| 24 | But Section 9.5 in generality gives up rights as against |
| 25 | others and limits them only to certain types and only |
| | |
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| 1 | against YACHTZOO. |
| 2 | So taken together, this grouping of limitations on |
| 3 | the rights to recover in the event of problems and bad acts |
| 4 | puts the estate in a place of being more exposed than the |
| 5 | U.S. Trustee thinks ought is -- ought to be reasonable. |
| 6 | THE COURT:
Okay.
Thank you. |
| 7 | MR. BONGARTZ:
May I respond, ma'am? |
| 8 | THE COURT:
Yes, counsel.
Go right ahead. |
| 9 | MR. BONGARTZ:
Okay.
Yes.
To be honest, I mean, |
| 10 | we certainly appreciate the comments we've -- that |
| 11 | Ms. Claiborn has given us.
And we obviously wanted to |
| 12 | negotiate and would want to negotiate the best contract |
| 13 | possible.
And, in fact, we've raised these issues with |
| 14 | YACHTZOO both before and after -- again, after Ms. Claiborn |
| 15 | communicated with us.
And on balance, this is, you know, |
| 16 | from our perspective, the best deal we could obtain. |
| 17 | Obviously, at the end of the day, we submit it's |
| 18 | the trustee's business judgment that should control on |
| 19 | these.
And while it would have been nice to get, you know, |
| 20 | improvements on these specific provisions, unfortunately |
| 21 | that just wasn't possible. |
| 22 | I should also note that we did actually -- in |
| 23 | negotiating the agreement did get actually what we believe |
| 24 | are substantial concessions, including with respect to these |
| 25 | provisions.
I should just reiterate the point about the |
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| 1 | increase in the liability cap to 2 million Euros. |
| 2 | But there were also other provisions that we |
| 3 | successfully improved from the perspective of the estate |
| 4 | during our negotiations. |
| 5 | We flagged a few of those in our motion, but, you |
| 6 | know, they include exclusive bankruptcy court jurisdiction, |
| 7 | the removal of the arbitration clause. |
| 8 | We've also -- YACHTZOO also agreed at our request |
| 9 | to remove a provision that would have required us to |
| 10 | indemnify them from third-party claims.
That used to be in |
| 11 | Section 9.4.
That was also removed. |
| 12 | So I think, on balance, we submit that the |
| 13 | contract should be -- entry into the contract as currently |
| 14 | before the Court should be approved.
Thank you. |
| 15 | THE COURT:
Thank you.
All right.
I want to |
| 16 | look -- I'm looking at these provisions in the agreement at |
| 17 | the moment that we just discussed.
I'll start with 9.2, |
| 18 | because that's where you started. |
| 19 | So with regard to 9.2 and the concern about the |
| 20 | limitation on liability and the cap of 2 million Euro, I |
| 21 | mean, this clause existed in -- did this clause exist in the |
| 22 | management agreement that was in place prior to the trustee |
| 23 | entering -- |
| 24 | MR. BONGARTZ:
Yes.
We were informed that it did. |
| 25 | THE COURT:
And do you know if there was a cap? |
| | |
Ho Wan Kwok - April 11, 2023 18 MR. BONGARTZ: There was. We're told by YACHTZOO that the cap was 1 million Euros. THE COURT: So you've exceed the -- you've increased the cap? MR. BONGARTZ: Correct. THE COURT: And the Section 9.2 says that the manager shall have no liability whatsoever to the owner for any loss, damage, delay, or expense unless it is proved to have resulted directly or indirectly from or has been materially contributed to by the negligence or gross negligence or willful conduct. So it's not just gross negligence and willful misconduct. It's negligence as well. MR. BONGARTZ: Yes. That's -- yes, that's correct. Yes. THE COURT: And it's negligence or gross negligence or willful misconduct of the manager or its employees or agents or managers or subcontractors employed by the manager in connected with the -- in connection with this agreement. So I don't see that Section 9.2 is limited solely to the manager. MR. BONGARTZ: No. I believe what -- again, I don't want to be presumptuous to speak for Ms. Claiborn. But I believe in this particular instance she's referring to Section 9.5 which essentially, the way I read it, precludes Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 18 of
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| 1 | us from suing the employees.
But this does not mean that |
| 2 | the manager can avoid liability for the actions of its |
| 3 | employees.
So if the employee does something wrong -- |
| 4 | THE COURT:
Right. |
| 5 | MR. BONGARTZ:
-- and, obviously, the manager acts |
| 6 | through its employees -- then we can pursue claims against |
| 7 | the manager.
It just -- 9.5 just, you know, precludes us |
| 8 | from going after the employee individually. |
| 9 | THE COURT:
So, Attorney Claiborn, I'm looking at |
| 10 | the sections that still remain in dispute, I would say, or |
| 11 | at least not in agreement.
So I'm -- with regard to 9.2, |
| 12 | the limitation on the liability, the dollar amount is 2 |
| 13 | million Euro.
I see that.
And counsel is saying that the |
| 14 | dollar amount prior to this was 1 million. |
| 15 | So isn't that an improvement for the estate if the |
| 16 | amount is increased by a million dollars? |
| 17 | MS. CLAIBORN:
It definitely is an improvement. |
| 18 | Our position is just that professionals should not be able |
| 19 | to protect themselves by limiting their liability in advance |
| 20 | of performing services. |
| 21 | THE COURT:
Understood.
The trustee's counsel is |
| 22 | saying, though, that they wouldn't enter into this agreement |
| 23 | without that provision. |
| 24 | MS. CLAIBORN:
That is the typical refrain that I |
| 25 | hear from the other side of the aisle as to |
| | |
Ho Wan Kwok - April 11, 2023 20 professionals' -- THE COURT: Well -- MS. CLAIBORN: -- positions on things. It's -- THE COURT: You may be right. MS. CLAIBORN: It's understandable. But that said, it's the point that the estate is exposing itself in a way that the U.S. Trustee would prefer and thinks it is not appropriate. THE COURT: Well, let's think that -- MS. CLAIBORN: So I'm raising that issue. THE COURT: What do we have for insurance with regard to the Lady May right now? MR. BONGARTZ: There is various insurance. I think there is a -- I know there's a P&I policy, a protection and indemnity policy which I believe has a cap of \$100 million. There is a Holland machinery policy which protects the boat from property damage. I don't -- and I'm sorry. I don't know off the top of my head what the liability limit is for that. And then there's various other smaller policies for cyber -- covering cyber attacks. And for the crew there's also going to be a health insurance. THE COURT: The reason I ask the question is the -- if the manager does something wrong with regard to the boat, right, even just acts negligently, at least under Paragraph 9.2, if that negligence is proven to have resulted Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 20 of
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| 1 | directly or indirectly from or has been material |
| 2 | contributed -- materially, excuse me, contributed to by the |
| 3 | negligence or gross negligence or willful misconduct of the |
| 4 | manager or its employees or agents or managers, then there's |
| 5 | a possible recovery of 2 million Euro. |
| 6 | Plus, what would the manager -- what would happen? |
| 7 | I mean, let's just use a hypothetical, right?
They |
| 8 | didn't -- the manager forgot to fuel the boat, and some |
| 9 | reason -- they start the boat and it burns up the engine, |
| 10 | right?
That would be -- you could argue that would be |
| 11 | negligence.
They were negligent in taking care of the boat. |
| 12 | That's what they're doing.
They're managing the |
| 13 | boat, right?
Isn't that their -- that's the reason they're |
| 14 | being retained? |
| 15 | MR. BONGARTZ:
Through the crew, yes.
I mean, the |
| 16 | manager is either -- their offices are in Europe, so they're |
| 17 | not physically on the boat.
But they are responsible for -- |
| 18 | THE COURT:
Well, and as it says -- |
| 19 | MR. BONGARTZ:
Yeah. |
| 20 | THE COURT:
-- the manager, its employees or |
| 21 | agents or managers or subcontractors -- |
| 22 | MR. BONGARTZ:
Correct. |
| 23 | THE COURT:
-- employed by the manager in |
| 24 | connection with this agreement, right? |
| 25 | MR. BONGARTZ:
Correct. |
| | |
Ho Wan Kwok - April 11, 2023 22 THE COURT: So you'd have a claim against the manager, and you might even have an insurance claim, right? MR. BONGARTZ: Depending -- I mean, I would have -- it all depends on the specifics. THE COURT: I'm just saying hypothetically. MR. BONGARTZ: But yes. Yes. THE COURT: Right? Hypothetically. And the estate now has negotiated a better bargain under Article -- or section 9.2 to have the cap be \$2 million. So with regard to 9.2, I understand the United States Trustee's position that they don't -- that the office does not support what is -- can be interpreted as a limitation on liability. But I think under the circumstances of this case and under the circumstances that the cap has been increased, I think it's reasonable, and I think that the trustee's acting within his business judgment to agree to 9.2 in the management agreement. I think there's protection not only under this agreement but potentially other agreements that are to ensure or -- the boat, the yacht for the purposes of the estate. So I don't know that you made a formal written objection, Attorney Claiborn, but to the extent -- MS. CLAIBORN: Your Honor, we did not based -- and that was due, in part, to the fact that this was just filed Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 22 of
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| 1 | last week, and so -- |
| 2 | THE COURT:
Right.
With regard to Section 9.2, |
| 3 | while I agree that, you know, no section and no wording are |
| 4 | perfect -- are often perfect in agreements, I think that |
| 5 | this language has some broad implications, and I think it's |
| 6 | protective of the estate in a reasonable manner under the |
| 7 | circumstances of this case.
Okay? |
| 8 | With regard to 9.5, 9.5 references 9.2.
So it |
| 9 | says except to the extent the manager would be held liable |
| 10 | under 9.2, the owner hereby undertakes and agrees that it |
| 11 | will -- and agrees that it will undertake to obtain an order |
| 12 | from the bankruptcy court to enjoin legal actions brought by |
| 13 | third parties against the manager arising out of or caused |
| 14 | or occasioned by the manager performing any of the services |
| 15 | under the terms hereof. |
| 16 | MR. BONGARTZ:
Your Honor, I -- |
| 17 | THE COURT:
All that's saying is that you're going |
| 18 | to try to get an order to stop people from doing that, |
| 19 | right? |
| 20 | MR. BONGARTZ:
That is correct, Your Honor.
I |
| 21 | just would note -- |
| 22 | THE COURT:
Oh, except I just read the wrong -- |
| 23 | MR. BONGARTZ:
-- you're reading 9.4. |
| 24 | THE COURT:
I just read the wrong provision. |
| 25 | That's 9.4. |
| | |
Ho Wan Kwok - April 11, 2023 24 MR. BONGARTZ: Yeah. Correct. THE COURT: So 9.5. I'm sorry. Yeah. So 9.5 is, to me anyway, saying you can't sue the individual employees or agent or manager. You have to serve -- you have to sue YACHTZOO -- MR. BONGARTZ: That's our understanding. THE COURT: -- and they're responsible for all of those people's -- all those parties' actions anyway under 9.2. MR. BONGARTZ: Correct. That's our understanding and reading of that provision as well. THE COURT: Okay. I think 9.5 is reasonable again under the circumstances of this case. THE COURT: All right. Let me look at the Section 5.3 setoff, counterclaims, and payment issue. Well, I mean, it does say -- it doesn't foreclose the ability for a setoff or a counterclaim or a condition or qualification free and clear of and without any deduction, because you could get the prior written consent of the manager to do that, correct? MR. BONGARTZ: That is correct. THE COURT: So I think that's fine too. I think that the trustee -- MR. BONGARTZ: Okay. THE COURT: -- can exercise his business judgment Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 24 of
Ho Wan Kwok - April 11, 2023 25 to have that provision in the agreement. The one thing, counsel, that I would add, though, in addition to what I just stated, that minor language about YACHTZOO -- MR. BONGARTZ: Yes. THE COURT: -- has consented that it shall issue, right -- MR. BONGARTZ: Correct. THE COURT: -- although I understand it says it in the management agreement, it might make sense in this order to state that YACHTZOO has agreed that the exclusive jurisdiction of the -- you know, this Court has exclusive jurisdiction over any -- you know, whatever the provision is that you already noted on the record. MR. BONGARTZ: That's fine. They have agreed to the insertion of Section 15.2. And I don't think it's a problem to also specifically note that in the order itself. THE COURT: I would do that. (Counsel confer) MR. BONGARTZ: That's fine, Your Honor. THE COURT: I think it'll make it easier -- it could make it easier for future issues. All right. Then is there anything further we need to address with regard to this order, the order authorizing the trustee to enter into and perform under certain post-petition agreements relating to the maintenance and Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 25 of
Ho Wan Kwok - April 11, 2023 26 operation of the Lady May? MS. CLAIBORN: There are two other contracts that are a part of this motion, and we do have some updates on one, and we need to have some discussion about the other. THE COURT: Okay. So this order does encompass the other two agreements? MS. CLAIBORN: Yes. MR. BONGARTZ: Correct. It covers all three. It's the defined term -- THE COURT: Three. Okay. MR. BONGARTZ: It's the defined term maintenance agreements -- THE COURT: Okay. MR. BONGARTZ: -- which is -- okay. THE COURT: So what about the crew provision agreement? That's the next agreement. MR. BONGARTZ: So -- THE COURT: What are the issues in that? MR. BONGARTZ: On the crew provision agreement, we actually did resolve all of the U.S. Trustee's concerns by making two modifications to the agreement itself. They are, first, changing the applicable law from Cyprus law to New York law. And that was acceptable to the crew employer. And then the second change is adding a clarification to the end of Section 5.3 to -- just as quick Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 26 of
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| 1 | background, Section 5.3 deals with our obligation to obtain |
| 2 | insurance coverage for the crew as well as P&I insurance, |
| 3 | which we in the case of P&I insurance already have and in |
| 4 | the case of crew insurance will obtain as soon as this |
| 5 | agreement has been entered into.
And that under those |
| 6 | insurance policies, the employer will be included as a |
| 7 | co-insured. |
And there had been some confusion about the word "indemnified" which some -- which the U.S. Trustee had concerns about that somehow the trustee was agreeing to indemnify the crew employer. That's actually not the case. It simply means that under the insurance, the employer will be indemnified.
But in order to resolve and button this issue up entirely and prevent any argument that somehow the estate is releasing or discharging potential future claims against the crew employer, we've agreed and the employer has also agreed to add the following language at the end of Section 5.3, and that will read, "Notwithstanding the foregoing, nothing herein shall release or discharge FDS" which is the employer "from any liability to LDS," that's the estate, "that may arise out of this agreement." And I have a copy of the revised agreement
available as well if Your Honor --
THE COURT: I don't need the copy of the revised
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| 1 | agreement.
But I think what you could do, counsel, is if |
| 2 | that's -- if the U.S. Trustee has -- does that resolve the |
| 3 | U.S. Trustee's issues with regard to the crew provision |
| 4 | agreement? |
| 5 | MS. CLAIBORN:
That new language does, Your Honor. |
| 6 | THE COURT:
So the crew provision agreement |
| 7 | attached to the motion then is now going to be different |
| 8 | from the crew provision agreement that the trustee is going |
| 9 | to sign and enter into? |
| 10 | MR. BONGARTZ:
That is correct.
And we were -- we |
| 11 | can do it either way.
We can either file a revised proposed |
| 12 | order attaching the updated form -- |
| 13 | THE COURT:
I don't think you need to do that. I |
| 14 | think you just say in the order the crew provision agreement |
| 15 | as modified, you know, after the filing of the motion, |
| 16 | right? |
| 17 | MR. BONGARTZ:
Okay. |
| 18 | THE COURT:
I think that's fine. |
| 19 | MR. BONGARTZ:
Okay.
We will make that change. |
| 20 | And -- |
| 21 | THE COURT:
All right.
Then we -- moving on to |
| 22 | the dockage agreement.
Is that right? |
| 23 | MR. BONGARTZ:
That is correct.
I need to set the |
| 24 | stage a little bit for this -- |
| 25 | THE COURT:
Sure. |
| | |
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| 1 | MR. BONGARTZ:
-- for this agreement.
We're |
| 2 | essentially entering into a month-to-month-based agreement |
| 3 | with the Bridgeport Harbor Marina.
Specifically, we would |
| 4 | be entering into it for the month of April and any |
| 5 | reasonable extension. |
| 6 | I want to be clear, our -- and this sort of now |
| 7 | bleeds into a few housekeeping matters.
We are not |
| 8 | intending to keep the Lady May indefinitely or even long or |
| 9 | medium term in Bridgeport.
Obviously, we would seek relief |
| 10 | from the Court before we move the Lady May.
But our |
| 11 | intention is to move the Lady May to Rhode Island, |
| 12 | specifically the free trade zone in Newport, to facilitate |
| 13 | marketing and sale of the boat. |
| 14 | And so what we're looking at here is definitely |
| 15 | the month of April, which obviously has already started, |
| 16 | potentially some portion or maybe the month of May.
But |
| 17 | we're not looking at a horizon that would go beyond that. |
| 18 | And in light of that -- and we do recognize that |
| 19 | there are objections that the U.S. Trustee has raised.
But |
| 20 | in light of that, the short-term nature of this agreement, |
| 21 | we would ask that the -- this -- entry into this agreement |
| 22 | also be approved. |
| 23 | Now I want to just briefly preview -- and I'm not |
| 24 | trying to take anything away from Ms. Claiborn, but I want |
| 25 | to just briefly preview what we understand the three issues |
| | |
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| 1 | to be.
And they all are in the terms and conditions portion |
| 2 | of the agreement.
It's the proverbial fine print, page -- |
| 3 | and it's all on page 3 of those terms and conditions. |
| 4 | THE COURT:
Okay.
Hold on one second.
I'm |
| 5 | looking at a document that starts the terms and conditions |
| 6 | on page 2. |
| 7 | MR. BONGARTZ:
Correct. |
| 8 | THE COURT:
And then -- |
| 9 | MR. BONGARTZ:
And then on the very next page |
| 10 | that's -- |
| 11 | THE COURT:
So you want me to look at page 3? |
| 12 | MR. BONGARTZ:
Correct, Your Honor. |
| 13 | THE COURT:
Okay.
Go ahead. |
| 14 | MR. BONGARTZ:
So I want to preface what I'm going |
| 15 | to say next is that we have tried to modify these |
| 16 | provisions.
We've reached out to Bridgeport Marina and to |
| 17 | ask them if they were -- would modify them.
But they |
| 18 | have -- we've gotten a very clear and hard no.
And so I |
| 19 | want to just put that into context before I start my -- you |
| 20 | know, the discussion of this -- these sections. |
| 21 | So the first comment, we understand, is the |
| 22 | section that starts with the vessel agent and owner hereby |
| 23 | release and discharge marina, which we understand is a |
| 24 | release of the marina for any claims of negligence.
That is |
| 25 | in little one, like the fourth line down. |
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| 1 | We, however, read this provision as not precluding |
| 2 | claims against the marina arising from intentional conduct |
| 3 | and gross negligence. |
| 4 | Specifically, if you go into item number three, |
| 5 | there is a parenthetical not rising to the level of gross |
| 6 | negligence and intentional conduct, which is specifically |
| 7 | carved out there.
So our position and our view of this |
| 8 | agreement is that while there is a release of negligence |
| 9 | claims, claims rising to the level of intentional conduct or |
| 10 | gross negligence would not be released.
So that was issue |
| 11 | number one. |
| 12 | Issue number two is the indemnification provision |
| 13 | which is the very next section.
Unfortunately, it doesn't |
| 14 | have a section number, but it's the one that starts with |
| 15 | vessel agent and owner shall indemnify and hold harmless |
| 16 | marina. |
| 17 | Again, it's -- from our perspective, it's the same |
| 18 | distinction that I would like to draw here between, on the |
| 19 | one hand, claims arising out of the marina's negligence for |
| 20 | which there would be indemnification and -- on the one hand |
| 21 | and on the other hand claims rising to the level of gross |
| 22 | negligence and intentional conduct which, again, our reading |
| 23 | is are excluded. |
| 24 | And I want to -- yes, it's -- I'm sorry.
It took |
| 25 | me a second to find the languages.
It's the last line of |
| | |
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| 1 | that section of the terms and condition at the end, again |
| 2 | the parenthetical, not rising to the level of gross |
| 3 | negligence, et cetera.
So that was the second issue. |
| 4 | And the third issue is the responsibility for |
| 5 | attorney's fees.
Obviously, you know, that's not something |
| 6 | that, you know, we would ever offer up lightly.
But we |
| 7 | pushed back as hard as we could on this, and the marina just |
| 8 | simply said that this was just not acceptable to in any way |
| 9 | modify their standard terms and conditions. |
| 10 | But I should also note the attorney's fees is |
| 11 | limited to enforcement of this agreement.
We obviously have |
| 12 | every intention to pay and comply with this agreement. |
| 13 | In fact, we've already made the Bridgeport Marina |
| 14 | a co-insured under the insurance policies, both the P&I |
| 15 | policy and the Holland machinery policy as they required us |
| 16 | to do. |
| 17 | So we don't believe on balance that there's a -- |
| 18 | you know, obviously, there's always a risk.
So I can't give |
| 19 | any assurances here.
But we don't believe there's a |
| 20 | material risk that they would ever have to come to court or |
| 21 | any other court to enforce this agreement. |
| 22 | And in any event, I should also note that we |
| 23 | specifically negotiated that this Court will have exclusive |
| 24 | jurisdiction over any claim or dispute arising out of this |
| 25 | agreement. |
Ho Wan Kwok - April 11, 2023 33 So to the extent that there is a -- ever a dispute over what any of the foregoing provisions that I just summarized mean and what their effect is, this Court would ultimately be the arbiter of that. So I know I said a lot, and I will pass the podium to Ms. Claiborn now to respond. Thank you. MS. CLAIBORN: Thank you. Your Honor, the boilerplate language that's on page 3 that Attorney Bongartz has just summarized for the Court is a common and regular appearing sort of language in maritime agreements and has been routinely held to be enforceable. So should something happen that is the fault of the marina, the marina is actually not going to be responsible, because this language gives up on that responsibility. The location of the language regarding gross negligence or intentional conduct is purposefully confusing, I think, and could be read to be limited to the concepts that follow immediately before it which are strict liability, breach of warranty, or other fault. It does not say in an easy to read and easy to understand way that such conduct that rises to the level of gross negligence or intentional conduct of any kind would be excluded from the protections that are given to the marina. So the U.S. Trustee again has concerns that should Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 33 of
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Ho Wan Kwok - April 11, 2023 34 something happen, and even if it's the fault of someone at the marina, that the estate is not only liable for it but the estate also has to pay for the attorney's fees in connection with the dispute that involves that. So I appreciate Attorney Bongartz reaching out to
the marina to ask them to consider walking back some of these protections, but like I said, from what I've seen in the case law, these types of protections are routine, and they are held to be enforceable. And so based on that backdrop, I understand why the marina said no, but that doesn't make it an appropriate risk that the estate should bear.
MR. BONGARTZ: I don't have much further to add except to note that if the marina -- if we don't enter into this agreement, which again is a short-term agreement, but if we don't enter this, the fate of the yacht is uncertain.
I can't stand here right now and tell you that the marina would not unmoor the ship and just let it drift off to sea. I think that would be incredibly irresponsible on their part. But if we don't have a contract with them, I just don't know what they would do.
And then the other aspect is, in some sense this is kind of the hand that we've been dealt, because that's where the boat was and currently is at the time of the -- of ownership having been determined to be in the -- with the
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| 1 | estate. |
| 2 | We have, as I mentioned earlier, no intention of |
| 3 | keeping the boat there long term.
This is simply a |
| 4 | short-term arrangement that we have to accept, |
| 5 | unfortunately. |
| 6 | We would love to have improved these terms, but I |
| 7 | unfortunately cannot.
I don't have the power to force the |
| 8 | marina to change their standard terms and conditions. |
| 9 | So under those circumstances, we submit that given |
| 10 | the lack of alternatives and given that our objective is to |
| 11 | move the boat as soon as possible, we would ask that the |
| 12 | agreement be approved.
Thank you, Your Honor. |
| 13 | THE COURT:
I have a question about the fees and |
| 14 | expenses right now that are due to the marina.
What is due |
| 15 | to the marina right now? |
| 16 | MR. BONGARTZ:
We understand that they are -- they |
| 17 | have been paid through the end of March.
So the only |
| 18 | "outstanding" is -- they're not outstanding.
They're fees |
| 19 | that are due for this month, the month of April.
They are |
| 20 | \$16,484.
And they have not yet been paid. |
| 21 | THE COURT:
And that's all the marina will be |
| 22 | billing the estate for in April, the marina itself? |
| 23 | MR. BONGARTZ:
Correct.
Yes. |
| 24 | THE COURT:
In accordance with the dockage |
| 25 | agreement? |
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| 1 | MR. BONGARTZ:
Just one second, Your Honor. |
| 2 | THE COURT:
Yeah. |
| 3 | (Counsel confer) |
| 4 | MR. BONGARTZ:
I'm sorry.
There could be an |
| 5 | adjustment based on the amount of electricity consumed, and |
| 6 | there might be a reconciliation at the end of the month. |
| 7 | But we're not talking a large amount of dollars here. |
| 8 | THE COURT:
But that electricity would be -- have |
| 9 | to be paid for regardless of who was in the party to the |
| 10 | dockage agreement with the marina?
That's not something |
| 11 | unique to this vessel? |
| 12 | MR. BONGARTZ:
No, of course not.
No. |
| 13 | THE COURT:
And so if you keep the Lady May at the |
| 14 | marina through the end of May, which it sounds like you -- |
| 15 | the intent is that may not happen.
It may be moved before |
| 16 | the end of -- |
| 17 | MR. BONGARTZ:
Well, we may be able to move it |
| 18 | sooner than that.
I mean, we're exploring right now like |
| 19 | how soon we can move it.
But it may be before the end of |
| 20 | the month, obviously subject to this Court approving any |
| 21 | transfer of the yacht. |
| 22 | THE COURT:
So if you do not move the Lady May |
| 23 | before the end of April, do you have to enter into another |
| 24 | license agreement for the month of May? |
| 25 | MR. BONGARTZ:
We would have to do it for every |
| | |
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| 1 | month.
And we had as a -- you know, as -- in order to avoid |
| 2 | having to file such a motion, every month we would ask as |
| 3 | part of the relief requested in the motion that also any |
| 4 | reasonable extension be approved.
But I still reiterate my |
| 5 | earlier point.
We have no intention of this being a |
| 6 | long-term arrangement.
We want to move and ultimately sell |
| 7 | the Lady May as soon as possible. |
| 8 | THE COURT:
It does look like the electric -- |
| 9 | well, the electricity estimate is part of the \$16,484.25. |
| 10 | But I understand that may change depending upon a true-up or |
| 11 | whatever at the -- |
| 12 | MR. BONGARTZ:
Yeah.
I think -- |
| 13 | THE COURT:
-- of the month, right? |
| 14 | MR. BONGARTZ:
Correct.
You're accurate.
It's |
| 15 | estimated at \$5,000, so it could be somewhat higher or |
| 16 | somewhat lower -- |
| 17 | THE COURT:
Right. |
| 18 | MR. BONGARTZ:
-- based on actual usage. |
| 19 | THE COURT:
All right.
Attorney Claiborn, is |
| 20 | there anything else you'd like to add with regard to the |
| 21 | dockage agreement? |
| 22 | MS. CLAIBORN:
No, Your Honor. |
| 23 | THE COURT:
Okay.
Thank you.
I understand the |
| 24 | United States Trustee's Office concerns with regard to the |
| 25 | dockage agreement.
However, given the specific facts and |
| | |
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| 1 | circumstances of this case and the fact that the boat has -- |
| 2 | the vessel's been there since July of last year and there |
| 3 | haven't been any issues that the Court's been made aware of |
| 4 | with regard to the dockage agreement with the marina and |
| 5 | because it looks as though the language in the agreement |
| 6 | does exclude a release of any injury or damage not rising to |
| 7 | the level of gross negligence or an intentional conduct, |
| 8 | that these provisions, including the indemnity provision and |
| 9 | the payment of fees and expenses, while standard and |
| 10 | enforceable, are within reason in order for the trustee to |
| 11 | attempt to liquidate this asset of the estate. |
| 12 | And so, therefore, unless there's -- there is |
| 13 | no -- there are no changes that are going to be made to the |
| 14 | dockage agreement that have been -- that has already been |
| 15 | submitted and filed with the Court. |
| 16 | MR. BONGARTZ:
That's correct. |
| 17 | THE COURT:
So therefore I -- with regard to the |
| 18 | United State's Trustee's objections, I don't see any need to |
| 19 | change the proposed order other than in the manner that |
| 20 | we've already stated on the record.
Okay? |
| 21 | MR. BONGARTZ:
Thank you, Your Honor. |
| 22 | THE COURT:
So the -- does anyone else wish to be |
| 23 | heard on these agreements?
Okay.
Hearing nothing, then the |
| 24 | motion is granted for the reasons and in the manner stated |
| 25 | on the record, and a revised proposed order will be |
| | |
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Ho Wan Kwok - April 11, 2023 39 submitted. How much time do you need, counsel? MR. BONGARTZ: We can do that tomorrow or -- THE COURT: Okay. MR. BONGARTZ: Yeah. That's not a problem. THE COURT: I'll give you to Friday just to be on the safe side. The clerk's office likes to be able to track when things are submitted, when they're supposed to be submitted by. So I will indicate, when I get to the right place, that the motion for order authorizing agreements regarding the Lady May is granted, and a revised proposed order will be submitted on or before April 14th. MR. BONGARTZ: Thank you, Your Honor. THE COURT: Thank you. Now, it seems to me that we should be turning to the -- to Adversary 23-5005 where we have the motion for a preliminary injunction, TRO, and the defendant's motion to adjourn to April 11. I've seen -- it seems to me, Trustee Despins, and I could be wrong, but that you don't necessarily have a disagreement on the adjournment, but that you need to have an agreement, which I didn't see that there was an agreement, that the temporary restraining order would remain in place until the hearing on the adjourned preliminary injunction, correct?
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Ho Wan Kwok - April 11, 2023 40 MR. DESPINS: May I, Your Honor? THE COURT: Yes, please. MR. DESPINS: For the record, Luc Despins, Chapter 11 Trustee. There is an agreement on continuing the TRO -- or the injunction in place. Where there's no agreement or at least it's not clear that there's an agreement is that we said as an additional condition they should agree, because we served them under subpoena. We served Mr. Major with a subpoena for his client to appear today. We understand that she didn't appear today, but that subpoena, the acceptance of the subpoena should carry over to the adjourned hearing date so we -- Your Honor, you're familiar with this. We've had also some issues of people not appearing, not accepting subpoenas and all that. So that's really the issue. I thought this would be resolved by now, but we made it very clear that the only thing we wanted is an agreement that his client would appear pursuant to the subpoena at the adjourned hearing. And that's the only thing that we would condition that and the continuation of the injunction in place. That's the only thing we're seeking. So I guess I'll let Mr. Major address that. THE COURT: Mr. Major? MR. MAJOR: Thank you, Your Honor. Chris Major
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| 1 | for Greenwich Land, LLC and Ms. Ngok. |
| 2 | So first of all, with respect to the restraining |
| 3 | order, it specifically states that it remains in place until |
| 4 | further order of the Court.
So there's no need for an |
| 5 | agreement or stipulation of the parties.
The defendants |
| 6 | have not sought relief from that order or the -- |
| 7 | THE COURT:
Well, you could make an argument -- |
| 8 | you could make an argument that it expires today under the |
| 9 | Federal Rules of Civil Procedure.
So I want to -- I want |
| 10 | a -- an affirmative consent for an extension or I have to |
| 11 | make findings as to why I have to extend it. |
| 12 | MR. MAJOR:
So, Your Honor, as we did indicate to |
| 13 | the trustee's counsel, we are in agreement that the |
| 14 | restraining order can remain in place post today provided |
| 15 | that we're not prohibited from coming into the court, |
| 16 | including if necessary on an emergency basis, to seek some |
| 17 | relief from that order.
But we have no objection to the |
| 18 | order continuing on the basis that we're seeking this |
| 19 | adjournment.
And we certainly are not looking to put the |
| 20 | Court through the paces of making findings at this juncture. |
| 21 | THE COURT:
Well, I think what -- I think that's |
| 22 | fine, because you have whatever rights you have under the |
| 23 | Federal Rules of Civil Procedure -- |
| 24 | MR. BONGARTZ:
Yes, Your Honor. |
| 25 | THE COURT:
-- with regard to if you seek relief |
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| 1 | from a temporary restraining order. |
| 2 | So but you need -- you can affirmatively consent, |
| 3 | which you just have, to the extension of the temporary |
| 4 | restraining order until the adjourned hearing on the |
| 5 | preliminary injunction unless you seek relief from that |
| 6 | order.
And you could do that.
Whether or not you'd obtain |
| 7 | that, I have no idea.
Obviously, it would have to be |
| 8 | whatever you put before the Court seeking that type of |
| 9 | relief.
Okay? |
| 10 | MR. MAJOR:
Okay. |
| 11 | THE COURT:
But what about the subpoena issue? |
| 12 | MR. MAJOR:
So in terms of the subpoena, the way |
| 13 | that that was pitched to us was that not only that we accept |
| 14 | service of a subpoena which -- and we've never been |
| 15 | authorized to accept service and haven't accepted service of |
| 16 | the subpoena, but what -- the pitch was, was in exchange for |
| 17 | the trustee taking no position on our adjournment request |
| 18 | was that we accept service of the subpoena and agree that |
| 19 | Ms. Ngok would, in fact, testify at a preliminary injunction |
| 20 | hearing. |
| 21 | And as our motion for adjournment that we filed |
| 22 | over the -- I believe Friday evening over the weekend -- |
| 23 | yeah, Friday evening -- we are not in a position to be |
| 24 | prepared to substantively respond to the preliminary |
| 25 | injunction motion.
And that includes, without limitation, |
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| 1 | analyzing all the myriad of legal issues, procedural issues, |
| 2 | factual issues. |
| 3 | As Your Honor knows better than me, there's a lot |
| 4 | of water under the bridge in this bankruptcy case.
And |
| 5 | there is a lot that's even alleged in the various filings |
| 6 | that the trustee has made in this specific adversary |
| 7 | proceeding. |
| 8 | So what I can't do is tell the trustee that we are |
| 9 | waiving rights, various objections and things like that that |
| 10 | we may have or -- and may wish to pursue with respect to our |
| 11 | client having to testify. |
| 12 | And so I will accept service on -- and I am |
| 13 | authorized to accept service of a subpoena.
I'm certainly |
| 14 | not going to put the Court through anything or make the |
| 15 | trustee send a process server out.
We're in the case now, |
| 16 | and we can take the service of the subpoena. |
| 17 | But I can't waive any rights or objections we may |
| 18 | have in responding to that subpoena, whether it be a motion |
| 19 | to quash, whether it be objections, whether it be some |
| 20 | negotiated resolution on scope or anything like that. |
| 21 | But we're not yet in a position to know, despite |
| 22 | having asked generally, why the trustee needs to call |
| 23 | Ms. Ngok and what testimony the trustee may seek to elicit. |
| 24 | So we're just not in a position to go that far |
| 25 | down the road, but we will accept service of a subpoena for |
| | |
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Ho Wan Kwok - April 11, 2023 44 the adjourned date. THE COURT: Okay. I appreciate that, that you will accept service. With regard to the statements, I -- and I understand that you need some time, although you're being given time through an adjournment, right, an agreed-upon adjournment? They're not opposing your adjournment request, so you'll have some time. But with regard to that you don't know what the trustee will be asking or seeking, I'm not sure that's accurate, at least from your client's point of view, given prior testimony that your client has given with regard to Greenwich Land and that she's the owner of Greenwich Land and the -- as you know, prior counsel was -- already appeared for Greenwich Land and Ms. Ngok. I know you've now come in, and you have to do whatever you have to do. And I understand that. However, your client has already given testimony, and that testimony, at least what I've seen, has been submitted to the Court and is part of the record of this adversary proceeding. So I think the issue is this. If you're saying
you'll accept service of subpoena, but you want to reserve your right to file a motion to quash, then we'd have to, at the very least -- and I'm not suggesting that this is definitely what we're doing yet. But I'm making a
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| 1 | suggestion to you to think about is you'd have to accept |
| 2 | service of the subpoena on X date.
You'd have to serve your |
| 3 | motion to quash by Y date. |
| 4 | Because you're not serving your motion to quash |
| 5 | the morning of the hearing on the preliminary injunction. |
| 6 | We're not going to do that, right? |
| 7 | We're either going to have a hearing on whatever |
| 8 | you're moving to quash or whatever you decide to do or not. |
| 9 | We're not going to do that on the morning of the hearing, |
| 10 | because -- and that's fine, because you're consenting to the |
| 11 | extension of the temporary restraining order. |
| 12 | And if you then come in and you seek to somehow |
| 13 | get relief from that temporary restraining order, which |
| 14 | you're absolutely entitled to do under applicable Federal |
| 15 | Rules of Civil Procedure, then I would think that's your |
| 16 | burden, and you'd need to have your client testify.
I don't |
| 17 | know how else you couldn't have her testify since this is a |
| 18 | temporary restraining order against Greenwich Land and your |
| 19 | client -- and your individual client. |
| 20 | So I hear that there's progress with regard to the |
| 21 | subpoena, but I also think that there is a hurdle that |
| 22 | you're not willing to go over at this point.
Maybe you'll |
| 23 | have further discussions.
Maybe you won't.
I don't know. |
| 24 | But if you're going to take the position that you |
| 25 | have -- you accept service, but you're still going to |
| | |
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| 1 | reserve all your rights to quash, whatever you want to do, |
| 2 | that's fine, but we're going to set up a process for that so |
| 3 | that it's not the hearing -- the morning of the hearing or |
| 4 | the afternoon of the hearing and the preliminary injunction. |
| 5 | I'm not going to -- I mean, subject to the argument that I'm |
| 6 | going to get that that's not fine. |
| 7 | You know I'm going to get that argument right now |
| 8 | that it's not fine for you to -- I don't know if you're -- |
if I'm going to get that argument. I'm making a presumption that maybe I shouldn't that, you know, great that you're going to accept service, but if you're not going to produce her to testify, then let's fight it out right now. Why waste any time, essentially, is what I think I'm going to be told.
So I don't know what your response to that is, if any. But this has to proceed in some way, shape, or form. And at this point, your clients are defendants in an adversary proceeding. The time for your clients to file a response is running.
There is a -- there was supposed to be a hearing and a preliminary injunction today. Because, as I said, the argument can be made that the temporary restraining order expires today. And the trustee is saying, okay, you'd like to adjourn the hearing. That's fine. But I need you to accept service and produce your client for testimony.
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| 1 | I think you're saying I'll produce the -- I'll |
| 2 | accept service, but I'm not necessarily producing the client |
| 3 | for testimony.
So we need to address that issue somehow. |
| 4 | Because we're not going to have another hearing about it. |
| 5 | It's either it's going to happen or it's not going to |
| 6 | happen. |
| 7 | And it's fine whatever way you proceed.
I mean, |
| 8 | you have to do whatever you think is appropriate for your |
| 9 | client and your client -- but -- your clients.
But that's |
| 10 | where we are right now. |
| 11 | So, Trustee Despins, I've heard counsel say that |
| 12 | he'll accept the subpoena, but I assume that is not enough |
| 13 | from your perspective.
Is that correct? |
| 14 | MR. DESPINS:
Actually -- |
| 15 | THE COURT:
Maybe I'm wrong. |
| 16 | MR. DESPINS:
No.
Actually, Your Honor, we're |
| 17 | going to take the Court's lead on that, meaning as long as |
| 18 | there's a process before the hearing so that that issue can |
| 19 | be vetted out, we're okay with him just accepting service. |
| 20 | So there won't be any games about was she properly served or |
| 21 | not.
That's over. |
| 22 | And then if he wants to -- her not to testify, |
| 23 | then there'll be another hearing before the preliminary |
| 24 | injunction hearing.
We're okay with that suggestion, Your |
| 25 | Honor. |
| | |
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| 1 | THE COURT:
Okay. |
| 2 | MR. DESPINS:
So but I think we need to -- we |
| 3 | should really pick the dates and have the usual structure |
| 4 | you have which is both sides have to produce their exhibits |
| 5 | and their witness list by -- |
| 6 | THE COURT:
Yes. |
| 7 | MR. DESPINS:
-- seven business days, and then we |
| 8 | have four business days to respond or to object.
We should |
| 9 | build that in today if we -- |
| 10 | THE COURT:
We are going to do that.
Thank you. |
| 11 | So, Attorney Major, what time frame -- I looked at |
| 12 | your motion, but I have to say I looked at it very briefly. |
| 13 | So I didn't see in this -- I didn't see, but I could have |
| 14 | missed, okay, what kind of -- you said two weeks.
But are |
| 15 | you -- have you and the trustee discussed a date for an |
| 16 | adjourned hearing? |
| 17 | MR. MAJOR:
Your Honor, we discussed the two |
| 18 | weeks.
And let me just tell the Court, if I may, what the |
| 19 | genesis of the two weeks were. |
| 20 | We were in an exigent circumstance, which is there |
| 21 | was a hearing scheduled for today.
And we had a lot of work |
| 22 | today to get prepared for that hearing.
And that's not just |
| 23 | in terms of, you know, preparing exhibits and things like |
| 24 | that but to figure out what's available to do and then what |
| 25 | is advisable to do and then to consult with a client, which |
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| 1 | as I said in our request for an adjournment is not a |
| 2 | simplistic process.
And there's a language barrier, and |
| 3 | there are health issues and so forth. |
| 4 | So I needed to get the adjournment as quickly as |
| 5 | possible.
And I wanted to make sure that I asked for a time |
| 6 | that I thought that the Court would sign off on, that I |
| 7 | thought the trustee may join if they were willing to. |
| 8 | But also not knowing exactly how the existing |
| 9 | restraining order could impact things going forward, I |
| 10 | wanted to not ask for a date that was too far out that might |
| 11 | make it harder for me to get a hearing date if it's |
| 12 | determined that we do need to seek relief from that order |
| 13 | before the PI hearing.
Which at this point I don't plan to |
| 14 | do that, but circumstances change.
And, you know, the |
| 15 | order -- it may be something we have to come into the court |
| 16 | with. |
| 17 | So there was no, from my perspective, hard and |
| 18 | fast idea behind the two weeks except that, like I said, I |
| 19 | wanted to try to get something that I could persuade the |
| 20 | trustee to join or -- and, more importantly, that I could |
| 21 | get the Court to go along with. |
| 22 | I certainly don't have a problem with, you know, |
| 23 | setting a specific date.
And the other reason I just said |
| 24 | two weeks is I certainly wasn't aware of Your Honor's |
| 25 | availability.
So I thought it would be too presumptuous to |
| | |
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| 1 | suggest a specific date on when you -- |
| 2 | THE COURT:
No, that's fine.
That's fine. |
| 3 | MR. MAJOR:
Okay. |
| 4 | THE COURT:
I was just asking if you had talked |
| 5 | about a specific date.
But now, given what you've stated -- |
| 6 | and which is fine. |
| 7 | And the trustee's statements about -- and I think |
| 8 | it is the proper way to proceed -- is that we're going to |
| 9 | set a date by which you're going to accept service of the |
| 10 | subpoena.
And then we're going to set a date by which |
| 11 | you're going to have to file any motions under the Federal |
| 12 | Rules of Civil Procedure with regard to the subpoena. |
| 13 | And then we're going to have a hearing date set on |
| 14 | that, assuming you file something.
And then we're going to |
| 15 | then have the preliminary injunction hearing date after |
| 16 | that.
And in between those two hearings are going to be the |
| 17 | dates by which a list of witnesses and exhibits need to be |
| 18 | filed with the Court. |
| 19 | So that is how we're going to proceed with regard |
| 20 | to this matter.
Because we're not -- I'm not going to have |
| 21 | parties come in the day of a preliminary injunction hearing |
| 22 | and say -- and I'm not saying you -- I'm talking about |
| 23 | anybody -- and say we're not going to testify, because you |
| 24 | need to -- the subpoena needs to be quashed.
I mean, we |
| 25 | need to deal with that in advance of the hearing. |
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| 1 | So do you two want to confer for a few minutes |
| 2 | about dates?
I can tell you right now that what I would |
| 3 | offer to you all, and you'll have to all think about it, is |
| 4 | that the subpoena -- |
| 5 | And is it one or two subpoenas?
Are you also |
| 6 | subpoenaing Greenwich Land? |
| 7 | MR. DESPINS:
We probably will have to, Your |
| 8 | Honor. |
| 9 | THE COURT:
All right.
So the subpoenas -- you |
| 10 | will accept service of the subpoenas based upon your |
| 11 | agreement on the record, counsel, on or before Friday, April |
| 12 | 14.
You will file any objections, motions to quash, |
| 13 | whatever you feel is appropriate with regard to those |
| 14 | subpoenas on or before April 28th. |
| 15 | We'll have a hearing on the issue of the |
| 16 | subpoenas, if there is any objection filed to the |
| 17 | subpoenas -- and I'm just checking a time frame on a date, |
| 18 | so just bear with me, please.
On May 3rd at 12:00 p.m.
And |
| 19 | the preliminary injunction hearing will be held -- will |
| 20 | begin 10:00 a.m. on May 17 and continue to May 18 if |
| 21 | necessary.
Those are my proposed dates. |
| 22 | Would the parties like some time to discuss those? |
| 23 | I can take a short recess.
Whatever you prefer.
And the |
| 24 | temporary restraining order will remain in place until at |
| 25 | least May 17. |
Ho Wan Kwok - April 11, 2023 52 MR. DESPINS: From the trustee's point of view, these are fine, but we should add exhibit -- THE COURT: Oh, yes. I apologize. MR. DESPINS: -- and witness list -- THE COURT: The exhibit and witness lists will be filed on or before May 10. MR. MAJOR: Your Honor, may I be heard on that point? THE COURT: Yes. MR. MAJOR: I was told when this issue came up during our meet and confer process that Your Honor has followed that procedure of simultaneous exchange -- THE COURT: That is correct. MR. MAJOR: -- of witness lists, exhibits. I would just like to be heard on that. And I know you -- I've heard, obviously, what Your Honor has said on the record today. But given the way the burden works on this motion and given the fact that the trustee has already submitted a certification and has submitted exhibits and made, you know, statements and pleadings filed with the Court and as a result of that has already obtained orders on an ex parte basis, I think it's only fair, and I think it would also be the most efficient way to proceed is for the trustee -- and they don't necessarily have to file it, but if they would Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 52 of
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| 1 | serve on us first their witness list and their exhibit |
| 2 | list -- since they own the burden here and have already told |
| 3 | the Court they can satisfy the burden, that they make those |
| 4 | disclosures to us and then we do it in a responsive way. |
| 5 | So I'd ask the Court to consider that procedure |
| 6 | for this particular proceeding given what's happened so far |
| 7 | in it and given the way the burden works. |
| 8 | THE COURT:
When you say given so far what's |
| 9 | happened in it, what do you mean? |
| 10 | MR. MAJOR:
Meaning that the trustee has already |
| 11 | put in that certification that I mentioned and has obtained |
| 12 | orders on an ex parte basis, I think it would be appropriate |
| 13 | for the trustee to first disclose to us his exhibit list and |
| 14 | his witness list and then we do so in a responsive manner. |
| 15 | And then at that time the parties could file them with the |
| 16 | Court. |
| 17 | Like I said, I'm not insisting or asking the |
| 18 | trustee to do that by filing it, but I'm just asking the |
| 19 | Court if the Court would entertain that sequential method, |
| 20 | and then we could work out the particulars. |
| 21 | THE COURT:
When you say work out the particulars, |
| 22 | what do you mean? |
| 23 | MR. MAJOR:
Meaning, for example, this filing |
| 24 | versus service issue.
I'm just trying to be accommodative |
| 25 | to see if I can get the trustee to join me in this process. |
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| 1 | THE COURT:
Trustee Despins, what -- |
| 2 | MR. DESPINS:
Yeah.
Your Honor, the issue is not |
| 3 | service versus filing.
The issue is that, you know, they |
| 4 | have our full -- all our cards are on the table.
They are |
| 5 | through these various pleadings we filed and there's |
| 6 | certification.
If anything, it should be the opposite, |
| 7 | meaning they should go first.
But we're not insisting on |
| 8 | that. |
| 9 | For one year now almost in the case we've always |
| 10 | operated in the same -- you know, in this fashion of having |
| 11 | disclosure at the same time.
There's no reason why it |
| 12 | shouldn't be the case -- the same here.
In every |
| 13 | litigation, somebody has a burden; somebody does not.
And |
| 14 | we've always operated with disclosure at the same time. |
| 15 | And here they have our full game plan.
It's in |
| 16 | our pleadings.
So there's no prejudice to them in |
| 17 | submitting their exhibits at the same time.
And we don't |
| 18 | see any reason why we should change the approach. |
| 19 | THE COURT:
Anything further, counsel? |
| 20 | MR. MAJOR:
Yes, Your Honor.
I do think that it's |
| 21 | not necessary to just follow the procedure because it's been |
| 22 | done in other settings in the case.
I think that the -- |
| 23 | this case -- |
| 24 | THE COURT:
It's not just done in other settings. |
| 25 | That's how I -- that's my pretrial process, which under the |
| | |
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| Federal Rules of Civil Procedure every judge has the right |
| to decide how the pretrial process will work.
And I have |
| found over many, many years that that process works very |
| well.
You've asked them to consider it.
They're not |
| considering it. |
| I will note that at the time of the filing of the |
| complaint, 50 exhibits were filed in support of the |
| complaint.
So you already have -- and that -- those have |
| been on the record of this adversary since March 27 of 2023. |
| You already have 50 exhibits, which, you know, they're |
| probably going to be their list of exhibits. |
| You know who they want to call as a witness.
They |
| want to call your client.
I don't know if they're going to |
| call any other people, but I'm sure if you ask them they |
| could tell you if they are. |
| But I -- it's not an issue of burden.
It's an |
| issue of how the Court manages the trial.
And that's in |
| the -- there's -- the federal rules support that the Court |
| make its determination of how to manage a trial. |
| And as I said, I've done this in I don't know how |
| many but very many cases over the last ten years, and never |
| has anyone raised an issue with regard to the simultaneous |
| filings of list of witnesses and exhibits. |
| You have.
And I've heard your concern.
And I've |
| listened to the trustee.
And I think in this circumstance I |
| |
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| 1 | don't see any reason why I should deviate from the trial |
| 2 | management of this adversary in the -- from the way I do in |
| 3 | all other adversaries.
There's nothing -- and adversaries |
| 4 | which include injunctive relief, by the way.
We've had |
| 5 | plenty of them.
And I've never deviated from that case |
| 6 | management process with regard to lists of witnesses of |
| 7 | exhibits. |
| 8 | I think it's important for the parties to see at |
| 9 | the same time who's doing what in preparation for the trial. |
| 10 | And maybe it results in some communications.
Maybe it |
| 11 | doesn't.
But in many cases, it has resulted in |
| 12 | communications where parties have either stipulated to facts |
| 13 | and/or stipulated to the introduction of exhibits. |
| 14 | So that's part of the reason that I proceed in |
| 15 | that manner.
So I'm not going to -- I'm not persuaded that |
| 16 | there's any reason in this adversary proceeding that I |
| 17 | should deviate from that trial management process. |
| 18 | MR. MAJOR:
Thank you, Your Honor. |
| 19 | THE COURT:
Thank you. |
| 20 | So those dates that I've set forth, counsel, do |
| 21 | you have any questions about those dates? |
| 22 | MR. MAJOR:
Your Honor, just if we could confirm |
| 23 | the exchange of witnesses and exhibit lists.
I think |
| 24 | it's -- |
| 25 | THE COURT:
May 3rd. |
| | |
Ho Wan Kwok - April 11, 2023 57 MR. MAJOR: Okay. THE COURT: And that will be -- I'm sorry. No. That's the hearing. Wait a minute. I apologize. I made a mistake. MR. DESPINS: I think you said May 10th. THE COURT: May 10th. May 10th. I apologize. MR. MAJOR: Thank you, Your Honor. THE COURT: May 3rd would be the hearing on your objections -- MR. MAJOR: Right. THE COURT: -- to the subpoena. And that'll be at noon. So it'll be May 10th. And the way that we do -- we handle exhibits in this court is, you know, Plaintiff's 1 through whatever, Defendant's 1 through whatever. Or you can place a name on it. If you wanted to say Greenwich Land 1, whatever. I don't use letters. I use numbers. And they're all filed in PDF format, and they're all filed as separate PDFs. So if you have any issue with regard to that -- and sometimes people do if they haven't done it before. The clerk's office will help you and -- or someone at your office explain how to do that. Once you do it, it's -- you understand it. But if you've never done it before, and you need any assistance, you can contact the clerk's office, and Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 57 of
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| 1 | they'll help you with that.
Okay? |
| 2 | MR. MAJOR:
Thank you, Your Honor. |
| 3 | THE COURT:
All right.
So with regard to the |
| 4 | matters in Adversary 23-5005, the defendant's motion to |
| 5 | adjourn is granted in part for the reasons stated on the |
| 6 | record.
And then we will then issue a scheduling order with |
| 7 | regard to all of the issues leading up to the continued |
| 8 | hearing on the preliminary injunction which will begin at 10 |
| 9 | a.m. on May 17th. |
| 10 | I would assume that scheduling order will issue in |
| 11 | the next day or two.
We have some other things we have to |
| 12 | address.
But I would assume -- I would be surprised if it |
| 13 | didn't issue before Friday. |
| 14 | MR. MAJOR:
Okay.
Thank you. |
| 15 | THE COURT:
But we all -- the order -- the dates |
| 16 | are so ordered on the record, but they will be memorialized |
| 17 | in a scheduling order.
Okay? |
| 18 | Then so ECF 19 is granted in part.
ECF 12 is |
| 19 | continued to May 17 at 10:00 a.m. and will continue on to |
| 20 | May 18th if necessary at 10:00 a.m. |
| 21 | Just one moment, please. |
| 22 | Attorney Major, did you have a question? |
| 23 | MR. MAJOR:
Yes, Your Honor.
I actually just |
| 24 | forgot to clarify one thing -- |
| 25 | THE COURT:
Sure. |
| | |
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Ho Wan Kwok - April 11, 2023 59 MR. MAJOR: -- or ask the Court to clarify one thing, which is the response date for -- to the extent we file a motion to quash or some other motion relative to the subpoenas, when the trustee would respond in writing. THE COURT: You have until April 28th to file your objection, and the hearing is then on May 3rd. So I will give the trustee until May 2nd. MR. MAJOR: Thank you, Your Honor. THE COURT: But 5:00 p.m. on May 2nd if possible, Trustee -- MR. DESPINS: Yes, Your Honor. THE COURT: Okay? So that I could actually read it before we have a hearing on the 3rd. Okay? Thank you. Thank you, counsel. Okay? So we'll make sure that that's part of the scheduling order as well. All right. Then the last matter on the calendar today is in Adversary 22-5003, the motion to dismiss the adversary proceeding, Counterclaims 2, 3, 4, and 5. MR. DELLA FERA: Good afternoon, Your Honor. Sam Della Fera, Chiesa Shahinian & Giantomasi, for the movants, HK International Foods Investments USA Limited, LLC, which I will refer to as HKI, and Ms. Mei Guo. THE COURT: Good afternoon. MR. DELLA FERA: Good afternoon, Your Honor. And as the Court noted, this is the motion of HKI and Ms. Guo to
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| 1 | dismiss certain counterclaims filed by the trustee.
In |
| 2 | response to the complaint commencing this adversary |
| 3 | proceeding, the trustee filed an answer and five |
| 4 | counterclaims. |
| 5 | This motion, when filed, sought to dismiss four of |
| 6 | those counterclaims, namely Counterclaims 2, 3, 4, and 5. |
| 7 | Since then, Your Honor, as I'm sure the Court will recall, |
| 8 | Your Honor has entered summary judgment on Count 1 of the |
| 9 | trustee's counterclaims, leaving the four counterclaims that |
| 10 | are the subject of this motion. |
| 11 | More recently, Your Honor, we were -- my office |
| 12 | was advised by trustee's counsel that the -- for lack of a |
| 13 | better term, I suppose, the trustee considered Count 4 of |
| 14 | the counterclaims to be moot and advised our office, and I |
| 15 | believe the Court as well, that the trustee would not be |
| 16 | addressing that count but would be reserving its rights. |
| 17 | I'm sure counsel for the trustee can elaborate on that. |
| 18 | So that leaves for determination the motion to |
| 19 | dismiss as to Counts 2, 3, and 5 of the counterclaims.
The |
| 20 | motion has been extensively briefed by both sides, Your |
| 21 | Honor.
I don't intend to regurgitate the arguments here. |
| 22 | Suffice it to say that the motion is brought |
| 23 | pursuant to Federal Rules of Civil Procedure 12(b)(1) and |
| 24 | 12(b)(6) as incorporated herein by Federal Rule of |
| 25 | Bankruptcy Procedure 7012.
Both of those rules form the |
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| 1 | bases for the motion to dismiss each of the three remaining |
| 2 | counterclaims.
Namely, Your Honor, the lack of subject |
| 3 | matter jurisdiction and a failure to state a claim upon |
| 4 | which relief can be granted. |
| 5 | The lack of subject matter jurisdiction is based |
| 6 | on the trustee's lack of standing under both the Wagoner |
| 7 | rule and its close cousin, the doctrine of in pari delicto. |
| 8 | The trustee, as he has acknowledged in his filings, brings |
| 9 | these claims essentially standing in the shoes of the |
| 10 | debtor. |
| 11 | The trustee is given that benefit by law, but in |
| 12 | accepting that benefit, the trustee must accept the burden |
| 13 | of acting as the successor of the debtor. |
| 14 | And that burden, Your Honor, includes being |
| 15 | subject to the application of the Wagoner rule and the |
| 16 | doctrine of in pari delicto which are effectively the same |
| 17 | and effectively prevent the trustee from bringing claims |
| 18 | against HKI and Ms. Guo that the debtor himself could not |
| 19 | bring because the debtor was a participant in the alleged |
| 20 | wrongdoing. |
| 21 | Taking the counts in reverse order, Your Honor, |
| 22 | Count 5 alleges negligence against HKI and presumably |
| 23 | Ms. Guo, although Your Honor would be hard pressed to find |
| 24 | any reference to Ms. Guo, frankly, anywhere in the trustee's |
| 25 | counterclaims but specifically in Count 5. |
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Ho Wan Kwok - April 11, 2023 62 The negligence is alleged to have arisen by HKI and Ms. Guo, causing the debtor to fail to return the Lady May as directed by the New York court and thereby causing the debtor to incur a contempt fine. Of course, again, it's worth noting that there's no allegation that Ms. Guo herself caused the debtor to violate the New York court order. But more importantly, Your Honor, in order to -- for this Court to find negligence, the Court, of course, needs to determine that there was a duty of care that was breached by either HKI and/or Ms. Guo. The trustee alleges no such duty. Nor can there be any such duty, Your Honor. The debtor was obligated to return the Lady May as directed by the New York court. The debtor failed to do that. As cited in our brief, under New York law, in pari delicto bars claims against a co-conspirator for negligence and, at the very least, the debtor here is a co-conspirator. After all, the debtor himself was bound to return the ship. His failure to do so is now attributably to the trustee. And in any event, negligence does not sound in a generalized duty not to interfere with the obligation of a third party whom, by the way, the trustee alleges is an independent third party, at least for purposes of Count 5. And so without a specific duty owed by either HKI or Ms. Guo to the debtor and, here, the trustee, there can
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| 1 | be no -- as a matter of law, no finding that there has |
| 2 | been -- that there's liability on behalf of HKI or Ms. Guo |
| 3 | for negligence. |
| 4 | The trustee relies on some generalized duty of all |
| 5 | persons not to harm other people.
That, frankly, does not |
| 6 | exist.
And that's made clear, Your Honor, in the Hamilton |
| 7 | case that's cited, the New York Court of Appeals case cited |
| 8 | in our briefing. |
| 9 | So with respect to Count 5, the negligence count, |
| 10 | we submit that there is no duty as a matter of law of either |
| 11 | HKI or Ms. Guo not to interfere with the application of the |
| 12 | court's order -- the New York court's order.
And we -- also |
| 13 | the in pari delicto doctrine and/or Wagoner rule prevents |
| 14 | the trustee from asserting that claim in any event. |
| 15 | With respect to Counts 2 and 3, similarly, the |
| 16 | allegations essentially boil down to the debtor having |
| 17 | entered into a scheme to hide assets from his creditors. |
| 18 | The debtor obviously being an active participant in such a |
| 19 | scheme, to the extent it existed, cannot -- could not bring |
| 20 | a cause of action against HKI or Ms. Guo. |
| 21 | And as a result, the trustee standing in the shoes |
| 22 | of the debtor similarly cannot bring such a cause of action |
| 23 | based on both in pari delicto and the application of the |
| 24 | Wagoner rule. |
| 25 | Moreover, Your Honor, with respect to Count 2 -- |
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| 1 | and Count 3, as the Court may recall, is a very short, | |
| 2 | one-paragraph allegation essentially relying on the | |
| 3 | allegations in Count 2, which -- both of which counts | |
| 4 | essentially boil down to HKI is the alter ego of the debtor | |
| 5 | and/or the debtor is the equitable owner of HKI. | |
| 6 | Essentially, the same allegations. | |
| 7 | With respect to both claims, Your Honor, HKI and | |
| 8 | Ms. Guo assert that the trustee is bound by the stipulated | |
| | | |
order that this Court entered on April 29, 2022. That order expressly provided that there shall be no execution or attachment of the escrowed funds that were deposited by HKI in exchange for the -- or to ensure the return of the Lady May to these waters. The stipulated order was the result of negotiations among not only the debtor but PAX, the creditors' committee, other creditors that were represented by counsel.
The trustee described that stipulated order as essentially the debtor agreeing with himself. But the trustee fails to acknowledge that that order resolved the motion of PAX for stay relief. That motion was negotiated among multiple parties, including the then representative of the general unsecured creditor body, namely the committee, and that that order expressly provides that if the Lady May is returned timely that the \$37 million in escrow funds will -- would not be subject to execution or attachment.
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| 1 | So in addition to the application of the in pari |
| 2 | delicto and Wagoner doctrine and rule, we submit that as a |
| 3 | matter of law the counts that suggest that the trustee |
| 4 | should have access to the \$37 million in escrow funds by way |
| 5 | of being an -- the debtor being the alter ego of HKI or |
| 6 | otherwise through some other equitable ownership of HKI |
| 7 | fails as a matter of law. |
| 8 | The trustee, no doubt, will argue as -- to Your |
| 9 | Honor as he did in his papers that the in pari delicto |
| 10 | doctrine and the Wagoner rule don't apply here.
And they |
| 11 | note two exceptions to those doctrines.
But we submit, as |
| 12 | we did in our papers, that those exceptions do not apply. |
| 13 | Certainly, the doctrines do not shield insiders of |
| 14 | an entity from claims brought by that entity that would |
| 15 | otherwise be imputed to the entity.
In other words, if an |
| 16 | insider has done wrong and that wrongdoing is otherwise |
| 17 | attributable to -- or imputed to the plaintiff, the insider |
| 18 | cannot use the in pari delicto or Wagoner rules to protect |
| 19 | himself or herself. |
| 20 | That is not the case here.
The wrongdoer here, |
| 21 | Your Honor, is the debtor.
And by virtue of his being a |
| 22 | successor to the debtor, the wrongdoer, for purposes of |
| 23 | these claims anyway, is the trustee. |
| 24 | Again, the issues have been briefed.
I'm happy to |
| 25 | answer any questions that the Court may have.
But, |
| | |
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| 1 | otherwise, we would rely on our papers. |
| 2 | THE COURT:
Okay.
Thank you. |
| 3 | MR. DELLA FERA:
Thank you, Your Honor. |
| 4 | THE COURT:
I don't have any questions at this |
| 5 | time.
Thank you. |
| 6 | MR. MAJOR:
Your Honor, pardon the interruption, |
| 7 | but may I be excused? |
| 8 | THE COURT:
Yes.
But before you're excused, the |
| 9 | one thing I didn't do that you made me think about before we |
| 10 | started talking about the motion to dismiss is that |
| 11 | scheduling order will also have a date by which you have to |
| 12 | respond to the preliminary injunction relief.
So it'll be |
| 13 | that same date of the list of witnesses and exhibits where |
| 14 | you'll have to file your reply or objection to the |
| 15 | preliminary injunction.
Okay? |
| 16 | MR. MAJOR:
Thank you, Your Honor. |
| 17 | THE COURT:
All right.
Thank you. |
| 18 | UNIDENTIFIED SPEAKER:
Your Honor, with the |
| 19 | Court's indulgence, may I take one minute? |
| 20 | THE COURT:
Yes.
Certainly. |
| 21 | UNIDENTIFIED SPEAKER:
Thank you. |
| 22 | MR. DESPINS:
Your Honor, there were some |
| 23 | housekeeping matters -- really housekeeping matters.
I |
| 24 | could cover those in two seconds. |
| 25 | THE COURT:
Sure. |
| | |
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| 1 | MR. DESPINS:
The first one is, remember, there |
| 2 | was -- there were repairs that were not done to the ship, to |
| 3 | the valves, sea valves.
And so we're in discussions with |
| 4 | Mr. Moriarty about them consenting to use of the repair |
| 5 | reserve to make those repairs.
That's floating out there, |
| 6 | but we might be coming to Your Honor with a consent order |
| 7 | soon, so I want to flag that. |
| 8 | The second -- |
| 9 | THE COURT:
There was a consent order filed |
| 10 | yesterday too on -- with regard to the motion to intervene |
| 11 | and one of the adversaries.
That's been taken care of -- |
| 12 | MR. DESPINS:
That's been entered.
I saw that. |
| 13 | THE COURT:
Yes. |
| 14 | MR. DESPINS:
Yes. |
| 15 | THE COURT:
Okay. |
| 16 | MR. DESPINS:
The second one is that there -- |
| 17 | we -- there's a motion to expand the scope of the retention |
| 18 | of our expert, Dexter White (ph).
So that's coming.
We're |
| 19 | not asking -- |
| 20 | THE COURT:
Has it been filed? |
| 21 | MR. DESPINS:
No. |
| 22 | THE COURT:
Oh, okay. |
| 23 | MR. DESPINS:
No.
He's been -- |
| 24 | THE COURT:
Okay. |
| 25 | MR. DESPINS:
-- retained, but we -- |
| | |
Ho Wan Kwok - April 11, 2023 68 THE COURT: Okay. MR. DESPINS: -- need to expand his role -- THE COURT: I was going to say, I don't recall seeing that. Okay. MR. DESPINS: No. Yes. Then a motion to move the Lady May to Newport. That's coming. And then most importantly is the motion to approve the retention of a sales broker for the ship. I've been working on that extensively. It will -- you know, learning a lot about shipping. You know, the commissions that these people charge are more than a real estate broker. So if you think of a ship -- let's assume it's worth, in my dreams, \$30 million. You know, if their commission is 6 percent, you can imagine how much that is. So we're getting three brokers to submit bids on that. But, obviously, we cannot hire a broker without Your Honor's authorization, so we're going to come back to Your Honor for that, because this is priority number one, to sell the ship. So that -- THE COURT: Okay. Thank you. MR. DESPINS: These are all the housekeeping matters I wanted to raise. THE COURT: All right. Thank you. MR. DESPINS: Thank you. Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 68 of
Ho Wan Kwok - April 11, 2023 69 MR. BASSETT: Good afternoon, Your Honor. For the record, Nic Basset from Paul Hastings on behalf of the Chapter 11 Trustee. Your Honor, before I begin addressing some of the arguments made by counsel, I'd like to start by mentioning Count 4 which counsel also mentioned. And as counsel said, we had sent the Court a note yesterday which we thought might be helpful just in terms of, as the Court was preparing for today, to inform Your Honor that we did not intend to have argument on Count 4 which is our fraudulent transfer claims. And just to be clear for the record, the reason the trustee has taken that position is because those claims, the relief sought was the return of the Lady May by -- via a fraudulent transfer claim to the estate. Since the Court has already granted summary judgment on Count 1 of the trustee's counterclaims which sought ownership of the Lady May, there's no longer a reason at this time to pursue the fraudulent transfer claims in Count 4. And, in fact, that -- Count 4 was expressly pled in the alternative for that reason. So the trustee reserves his rights to the extent -- and I believe a notice of appeal was just filed of the summary judgment decision. The trustee, of course, reserves his rights to pursue those fraudulent transfer Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 69 of
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| 1 | claims at a later date if necessary.
But as of right now, |
| 2 | given the state of play, there's no effective relief that |
| 3 | could be granted on those claims, and, therefore, we don't |
| 4 | view them as being -- |
| 5 | THE COURT:
So you're not going to withdraw |
| 6 | Counterclaim 4.
You're going to keep it in place, depending |
| 7 | upon what happens with the appeal.
And if the Counterclaim |
| 8 | 1 is somehow defeated, then you're going to assert the |
| 9 | causes of action under Counterclaim 4? |
| 10 | MR. BASSETT:
That's right, Your Honor. |
| 11 | THE COURT:
Okay. |
| 12 | MR. BASSETT:
You know, and to give like a pretty |
| 13 | simply different example, I mean if -- |
| 14 | THE COURT:
No.
It's fine. |
| 15 | MR. BASSETT:
Yeah.
Okay. |
| 16 | THE COURT:
I just want to make sure you're not |
| 17 | withdrawing it. |
| 18 | MR. BASSETT:
Sure.
No.
That's -- |
| 19 | THE COURT:
But you're not -- |
| 20 | MR. BASSETT:
That's correct, Your Honor. |
| 21 | THE COURT:
You're not pursuing them.
So the HKI |
| 22 | parties' motion to dismiss the counterclaims right now, as |
| 23 | of today, are -- the parties are only asking the Court to |
| 24 | address Counterclaims 2, 3, and 5. |
| 25 | MR. BASSETT:
That's correct.
And, in fact, I |
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| 1 | don't know that the Court would even have jurisdiction over |
| 2 | Count 4 given that there's no effective relief that can be |
| 3 | granted and given the notice of appeal.
But that's correct, |
| 4 | Your Honor. |
| 5 | THE COURT:
Okay.
Go right ahead. |
| 6 | MR. BASSETT:
So, Your Honor, I will -- I'll start |
| 7 | by making the general observation that the -- if you look at |
| 8 | the motion to dismiss Counts 2, 3, and 5, there's really no |
| 9 | argument that the trustee has not sufficiently pled the |
| 10 | substantive elements of his causes of action, if you will, |
| 11 | in that there's really no allegation that the trustee has |
| 12 | not sufficiently pled that HK USA is the debtor's alter ego, |
| 13 | that the debtor beneficially owns HK, or that there was |
| 14 | some, you know, conduct that harmed the trustee -- or, |
| 15 | sorry, the debtor with respect to the negligence claim in |
| 16 | Count 5 of the complaint. |
| 17 | Instead, what we see are a bunch of what I would |
| 18 | call sort of strawman legal arguments that the |
| 19 | counter-defendants have raised in an effort to defeat the |
| 20 | otherwise facially valid and well-pled claims that the |
| 21 | trustee has brought.
And I would submit that each of those |
| 22 | legal arguments lacks merit.
And I'll walk through them. |
| 23 | I'll actually start in reverse order in terms of |
| 24 | the order that counsel raised the arguments.
I'll start |
| 25 | with the second and third counterclaims, the second being |
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| 1 | the alter ego counterclaim.
Which, as the Court is aware, |
| 2 | there's also the pending motion for summary judgment. |
| 3 | Assuming that the count is not dismissed, we would have that |
| 4 | argument on the 20th. |
| 5 | And I don't know that the Court -- obviously, it's |
| 6 | up to the Court.
I'm not sure if there needs to be a ruling |
| 7 | on this before then or not.
But just mentioning that we do |
| 8 | have the summary judgment motion out there. |
| 9 | The second counterclaim is the alter ego |
| 10 | counterclaim.
The third counterclaim is a counterclaim that |
| 11 | seeks equitable ownership of HK USA based on, you know, |
| 12 | similar concepts and similar principles. |
| 13 | The first argument that the counter-defendants |
| 14 | have raised is that -- I guess there's two arguments.
And |
| 15 | I'll put the in pari delicto and the Wagoner rule sort of in |
| 16 | one bucket, and I'll address those.
And then the other |
| 17 | argument is that the stipulation that this Court entered |
| 18 | with respect to the Lady May would bar the relief the |
| 19 | trustee is seeking to the extent it relates to the 37 |
| 20 | million, now \$33 million, I believe, that is held in escrow. |
| 21 | On the Wagoner rule and in pari delicto, I think |
| 22 | it is absolutely the case that both of the exceptions, one |
| 23 | being the insider exception and the other -- I don't even |
| 24 | know if it's an exception, per se, but the fact that the |
| 25 | trustee has pled the claim under Section 544, I think each |
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| 1 | of those gets around the Wagoner rule on Counts 2 and 3, no |
| 2 | question. |
| 3 | But before getting to each of those exceptions, I |
| 4 | think it's helpful to point out that in this case, under the |
| 5 | circumstances, the principles that underlie and that |
| 6 | motivate the in pari delicto doctrine and the Wagoner rule |
| 7 | are simply not at all implicated.
In fact, I would submit |
| 8 | that the opposite is true. |
| 9 | One of the cases cited by the counter-defendants |
| 10 | actually talks about what the motivating principle behind |
| 11 | the in pari delicto doctrine is, and that's the Teras |
| 12 | International Corp. v. Gimbel case that they cite.
And a |
| 13 | portion of that decision, what the court says is that the in |
| 14 | pari delicto doctrine, which is very similar to the Wagoner |
| 15 | rule, is based on the policy that courts should not lend |
| 16 | their good offices to mediating disputes among wrongdoers |
| 17 | and that denying judicial relief to an admitted wrongdoer is |
| 18 | an effective means of deterring illegality. |
| 19 | So in other words, the motivating factor behind |
| 20 | the rule is that, you know, courts don't want to give relief |
| 21 | to a plaintiff in a situation where doing so would encourage |
| 22 | illegality.
And by denying relief, they discourage the |
| 23 | illegal conduct that allegedly occurred. |
| 24 | So that makes sense in a situation where one |
| 25 | wrongdoer who's the plaintiff in a later action might want |
| | |
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| 1 | to obtain some monetary recovery from his co-conspirator or |
| 2 | his co-wrongdoer.
And the court would say, no, we're not |
| 3 | going to let you do that, because if we do let you do that |
| 4 | then you're basically benefitting from the fruits of your |
| 5 | wrong and the courts are intervening to help you recover |
| 6 | something from that other party. |
But here it's the exact opposite. Denying relief to the trustee or to the debtor if the trustee had never been appointed would have the exact opposite effect, because it would encourage the exact kind of illegality that the debtor has been engaged in with the assistance of HK USA and Mei Guo. Specifically, his entire purpose has been to keep his assets outside the reach of his creditors.
And if the Court were to hold that the in pari delicto doctrine and the Wagoner rule apply to prevent the trustee from getting this estate access to those assets, then the debtor wins. It's exactly what he's always wanted. So it would actually encourage him to have done that and would vindicate his efforts to hide his assets from creditors.
And in the future, any other debtor that wants to try to hide assets in shell companies, keep them away from creditors, presumably could do that. And it would -- he would find comfort that if he ever filed for bankruptcy, the trustee would not be able to recover those assets, because
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| 1 | the defendant would assert in pari delicto. |
| 2 | So I would submit that in this particular |
| 3 | instance, it would do a complete disservice to justice to |
| 4 | allow either rule to apply.
But the Court need not issue a |
| 5 | decision based on that, because there are two, as I said, |
| 6 | very well-established exceptions that apply. |
| 7 | The first, as counsel alluded to, is the insider |
| 8 | exception.
And we've cited cases in our papers.
I think |
| 9 | there is no doubt.
I mean, the cases that we cite say point |
| 10 | blank the Wagoner rule does not apply to claims against |
| 11 | insiders.
That's the PHS Group, Inc. case, 581 B.R. 16 |
| 12 | (Bankr. E.D.N.Y. 2018). |
| 13 | There's the TS Employment case, 597 B.R. 543 |
| 14 | (Bankr. S.D.N.Y. 2019): "The Wagoner rule does not protect |
| 15 | insiders." |
| 16 | I don't think there's really any dispute at all |
| 17 | about that general proposition.
Nor is there a dispute that |
| 18 | under the Bankruptcy Code under Section 101(31) of the |
| 19 | Bankruptcy Code both Mei Guo and HK USA are insiders of the |
| 20 | debtor. |
| 21 | The argument instead that we've received is, okay, |
| 22 | be that as it may, even if they are insiders and even if |
| 23 | there is this insider exception, the counter-defendants |
| 24 | would read the cases to say, well, that exception only |
| 25 | applies in a principal agent scenario where the defendant is |
| | |
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| 1 | the agent to a corporation and the agent's wrongdoing would | |
| 2 | be imputed to the corporation, and it has to be the agent | |
| 3 | who is the one who is primarily engaged in the wrongdoing, | |
| 4 | and it can't be the debtor or it can't be the plaintiff. | It |
| 5 | can't be the other way around. | |
I think that's -- that argument is wrong both on the law and on the facts. On the law, I think there is no such limitation to the insider exception in the case law. The cases that were cited by counsel and in their papers just don't apply to an individual debtor situation and leave to one side whether the Wagoner rule even applies to individual debtors. But the cases that they cite clearly wouldn't apply here, because the debtor is not a corporation.
But setting that aside, there's other cases that make clear that this is not a requirement. One of the cases that we cite to and discuss in our brief is the Butler case which is a 2015 case from the bankruptcy court in Massachusetts. That case was -- is a Chapter 7 case of an individual who was the sole shareholder and director of a corporation which was a dental practice. And as the sole shareholder and decision maker, the debtor authorized the payment of, I think, an allegedly exorbitant salary paid to his wife who was an employee of the corporation.
And in response to that, the in pari delicto
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| 1 | doctrine and the Wagoner rule were raised.
And the issue |
| 2 | was whether the insider defense applied given that the |
| 3 | recipient of the transfer, the defendant, was the debtor's |
| 4 | wife and, therefore, was an insider. |
And, notably, in that case there was zero allegation that the debtor's wife, who was merely an employee of this entity who just received a salary, was the one who, acting as an agent for the debtor, somehow caused him to engage in this wrongful conduct. In fact, the opposite was true. The court noted that the debtor was the one in control. The debtor was the one who decided to make the salary payment. But yet the insider exception applied, because the wife -- his wife who received the transfer is a statutory insider. So I think that case is instructive.
The other thing I would note is if you look at some of the cases that go through the kind of analysis of control and whether the defendant, you know, had sufficient control over the debtor for purposes of applying the exception -- the TS Employment case is an example -- those deal with non-statutory insiders. So the analysis that is undertaken is in connection with determining whether the control, you know, language in Section 101(31) was triggered.
And this is a situation where there's been no dispute. Nobody's argued that HK USA and Mei Guo are not
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Ho Wan Kwok - April 11, 2023 78 statutory insiders. Briefly -- I don't want to spend too much time on all these points, Your Honor. But one of the cases that's worth pointing out that's cited by the counter-defendants in their papers is the Madoff case, Bankruptcy Court Southern District of New York 2011. Again, that's a case that very clearly recites the insider exception and says that the in pari delicto or Wagoner rule does not apply to claims against insiders. In that case, the court ultimately held that the insider exception did apply, and, therefore, the in pari delicto doctrine and Wagoner rule did not apply to claims by Bernie Madoff's investment advisory company, BLMIS, against certain officers, directors, and compliance managers who helped Madoff carry out his fraud. And I just -- I don't see how this case is any different. Even if the debtor is the principal architect of his shell game, which of course he is, all you have to do is replace Bernie Madoff with Kwok, and these officer, director, and compliance manager defendants with HK USA and Mei Guo, and you get to the same result. The last thing I would note -- and I won't address all the cases, but I'm happy to discuss more of them. But the last thing I would note on this insider exception is that to the extent that there is some requirement of the
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Ho Wan Kwok - April 11, 2023 79 insider exception that we demonstrate that the insider was complicit or did engage in some wrongful conduct, I don't think it's accurate that we haven't alleged that. In fact, I think we've done it in spades. I think if you look at the counterclaims and the overall backdrop for this entire case and the counterclaims themselves, Mei Guo and HK USA have been instrumental in helping the debtor carry out this shell game to hide assets from creditors. This is all over the counterclaims. Paragraph 27 of the counterclaim we have a reference to, you know, Mei Guo executing the instrument of transfer to transfer ownership of HK International to herself -- or to -- from -- purportedly from the debtor to her for consideration of \$1. We have her at paragraph 30. She executed an LLC agreement for HK USA as the sole member of the company. We go on. Paragraphs 58, 61, we talk about Mei Guo's testimony in front of Justice Ostrager which he found had -- he found "cannot be credited in any respect." She was instrumental in trying to uphold the facade of separateness between the debtor and HK USA to enable him to keep his assets out of -- outside the reach of his creditors. And, in fact, Justice Ostrager found in his contempt decision that the debtor's daughter introduced no
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| 1 | 80
evidence that she exercised dominion and control of the Lady |
| | |
| 2 | May and provided no confirmation that she came into |
| 3 | possession of the Lady May "other than as a ruse to shield |
| 4 | the Lady May from being levied upon by her father's |
| 5 | creditors." |
| 6 | So I -- and this is all in the counterclaims.
So |
| 7 | I don't think it can be possibly disputed that, to the |
| 8 | extent we are required to allege some improper conduct on |
| 9 | the part of the insider defendants, that we've alleged that |
| 10 | more than sufficiently. |
| 11 | The second reason the in pari delicto and Wagoner |
| 12 | rules do not apply here, Your Honor, is because of the |
| 13 | Section 544 issue.
And, Your Honor, I'll walk through |
| 14 | this -- the key points related to the Section 544 issue now. |
| 15 | |
| 16 | But one thing I would like to point out for the |
| 17 | Court is that a lot of these same arguments came up in the |
| 18 | PJR briefing, and just to the extent it's helpful for the |
| 19 | Court to have a reference point, a lot of what I'm going to |
| 20 | discuss can also be found at paragraphs -- I think it's |
| 21 | roughly 23 to 25 of the reply that the trustee submitted on |
| 22 | the PJR motion.
And that's at ECF 101.
But, again, I -- we |
| 23 | don't need to incorporate that.
I'm just putting that out |
| 24 | there for the Court's convenience. |
| 25 | So the argument that the counter-defendants have |
| | |
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| 1 | made is that the -- I think they would concede that to the |
| 2 | extent a claim has been brought under Section 544(a) of the |
| 3 | Bankruptcy Code, it is by definition a claim that's being |
| 4 | brought on behalf of creditors. |
| 5 | So one thing that counsel said at the very |
| 6 | beginning of his remarks was that we're bringing these |
| 7 | claims, including our claims in Counts 2 and 3, in the shoes |
| 8 | of the debtor.
Well, that's not the case at all to the |
| 9 | extent we're bringing them under Section 544(a), which we |
| 10 | are. |
| 11 | And to the extent that -- I believe in their |
| 12 | papers the counter-defendants cite a case or two that calls |
| 13 | into question whether or not an alter ego claim can be |
| 14 | brought under Section 544(a).
I'll cite a bunch of |
| 15 | authority to the Court in a second that demonstrates that it |
| 16 | can. |
| 17 | But what I would like to start with noting is |
| 18 | there's a distinction between Section 544(a) and Section |
| 19 | 544(b) of the Bankruptcy Code.
Section 544(b), which is |
| 20 | cited in -- which case was it -- the Harrison v. Soroof case |
| 21 | that counter-defendants site, Section -- that was a case |
| 22 | where specifically the plaintiff in that case had argued |
| 23 | that his claim he was trying to bring arose under Section |
| 24 | 544(b) and not, as the court noted, Section 544(a). |
| 25 | And the difference is, of course, critical, |
| | |
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| 1 | because Section 544(a) says, "The trustee shall have, as of |
| 2 | the commencement of the case and without regard to any |
| 3 | knowledge of the trustee or of any creditor, the rights and |
| 4 | powers of," and then it goes on to say, "or may avoid any |
| 5 | transfer of property of the debtor or any obligation |
| 6 | incurred by the debtor that is voidable by," and then |
| 7 | there's a list of certain types of creditors, one of which |
| 8 | in the second subsection is a judgment creditor. |
| 9 | So the key language there is the rights and powers |
| | |
of, because this is not limited, as counter-defendants would suggest, to traditional avoidance actions. A trustee shall have, as of the commencement of the case, the rights and powers of a judgment creditor.
And under Delaware law, the rights and powers of a judgment creditor -- and I don't think this is disputed -- include the ability to bring an alter ego claim. And as I mentioned, this is distinct from Section 544(b) which does not contain that same language concerning the rights and powers of creditors but rather speaks only to traditional avoidance actions.
One of the cases cited by the counter-defendants is almost squarely on point and proves the trustee's argument. This is the Titan Real Estate case, In Re Flanagan, Bankruptcy Court Connecticut 2007. That was a case where the trustee was trying to bring an alter ego
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| 1 | claim, but it, as the court noted, specifically did not | | | |
| 2 | choose to bring that claim under Section 544.
The court | | | |
| 3 | said, "Notably, Titan" -- and this -- Titan was an assignee | | | |
| 4 | actually of claims that I believe the trustee had.
The | | | |
| 5 | court said, "Notably, Titan declines at this time to assert | | | |
| 6 | any of the trustee's 'hypothetical creditor' rights and | | | |
| 7 | powers under Code Section 544, even though, as discussed | | | |
| 8 | more fully infra, that statutory source provides the most | | | |
| 9 | coherent basis for the core Titan claims." | | | |
| 10 | And then if you go infra below in the opinion, the | | | |
| 11 | court expands on what it meant.
And what the court said was | | | |
| 12 | that -- and the court was saying that the trustee could have | | | |
| 13 | brought his claim under 544(a). | | | |
| 14 | And the court said, "The essential question under | | | |
| 15 | Section 544(a)(2)," which is a judgment creditor's rights, | | | |
| 16 | "is whether the claim that a trustee is asserting is one | | | |
| 17 | that an execution creditor would possess under applicable | | | |
| 18 | law.
At least two of the Titan claims -- the alter ego | | | |
| 19 | claim and the constructive trust claims -- are claims that | | | |
an execution creditor may prosecute under Connecticut law," which was at issue in that case.
The court went on to say, thus, the alter ego claim appears to have a more natural and effective foundation under Section 544(a)(2) than under Section 541(a)(1).
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Ho Wan Kwok - April 11, 2023 84 And then the court said, and this is the key language, this is true primarily because the assertion of claims to recognize a constructive trust or to disregard a separate legal entity (sic), i.e. alter ego, on behalf of a hypothetical, unsatisfied judgment creditor would be limited by none of the equitable deficiencies -- such as the in pari delicto disability -- that they suffer in the hands of the debtor.
So the court in that case gave a roadmap for how you would assert those claims in a way that obviously does not bind the trustee. And, oh, by the way, that's a way around what I was talking about at the outset which is that it makes no sense as a policy matter to imply the in pari delicto doctrine to these facts, because it would encourage debtors to simply hide all their assets in shell companies and then their response would be in pari delicto; you can't get them back. But under 544(a), you can.
And in the Titan case, the only reason that the trustee couldn't have brought them, it turns out, is that a statute of limitations issue had lapsed after the claims were assigned to the trustee. Not the case here.
As I'm sure Your Honor knows, the Titan court's analysis is consistent with what you wrote in your decision in the In Re Farrell case that was from February 12th of 2021. That case, which the Court will recall better than
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| 1 | I've gathered based on my reading of it, is that it involved |
| 2 | a trustee who was seeking to execute against a jointly held |
| 3 | bank account between the debtor and his son.
And what I |
| 4 | believe Your Honor held was that the trustee had the |
| 5 | authority to do that under Section 544(a) and applicable |
| 6 | Connecticut law. |
| 7 | And the opinion said, "Whenever applicable |
| 8 | non-bankruptcy law affords a right of action that would be |
| 9 | generally available to judgment lien creditors, Section |
| 10 | 544(a) should be construed to afford the estate |
| 11 | representative standing to assert the claim." |
| 12 | So that's exactly what we have here.
We have a |
| 13 | claim that a judgment creditor could bring for alter ego or |
| 14 | beneficial ownership.
Under applicable law, the trustee is |
| 15 | now able to assert that claim under Section 544(a). |
| 16 | There are numerous other cases, Your Honor, that |
| 17 | have held this, that the trustee can assert an alter ego |
| 18 | claim under Section 544(a).
Another one from this district |
| 19 | is the David X. Manners Co. case.
That's Bankruptcy Court |
| 20 | District of Connecticut November 27, 2018.
I won't discuss |
| 21 | it in detail, but it stands for the proposition that an |
| 22 | alter ego claim can be brought under Section 544(a). |
| 23 | In Re Archdiocese of Milwaukee, Bankruptcy Court |
| 24 | Eastern District of Wisconsin 2012.
That's 483 B.R. 693. |
| 25 | Same thing. |
| | |
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| 1 | In Re Wolf, 595 B.R. 735 (Bankr. N.D. Ill. 2018). |
| 2 | Same holding. |
| 3 | In Re Howland, 516 B.R. 163 (Bankr. E.D. Ky. |
| 4 | 2014).
Same thing. |
| 5 | So, Your Honor, to recap that issue, I think it's |
| 6 | clear as a policy matter in pari delicto and the Wagoner |
| 7 | rule do not apply here.
The exceptions bear that out, |
| 8 | because both also apply here.
Insider exception applies as |
| 9 | does the fact that these claims are brought under Section |
| 10 | 544(a). |
| 11 | The next argument that the counter-defendants |
| 12 | raise on Counts 2 and 3 is with respect to the Lady May |
| 13 | stipulation.
The Lady May stipulation does not prevent any |
| 14 | aspect of the relief that the trustee is seeking for several |
| 15 | reasons.
The first thing I would note that the trustee is |
| 16 | indisputably not a party to the stipulation and neither is |
| 17 | he bound by it for reasons that I will discuss. |
| 18 | But before I get to circumstances surrounding |
| 19 | entry into the stipulation and why the trustee is not bound |
| 20 | and all of that, there's a threshold issue that I think sort |
| 21 | of obviates all of that which is that the stipulation on its |
| 22 | face, even assuming it were binding on the trustee, is not |
| 23 | even implicated by the relief that the trustee is seeking in |
| 24 | Counts 2 and 3 of his counterclaims. |
| 25 | And this is so because the operative paragraph of |
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| 1 | the stipulation is paragraph 12, and paragraph 12 only |
| 2 | prohibits the debtor -- again, I'm operating under the |
| 3 | assumption that the debtor's obligations would extend to the |
| 4 | trustee here -- but it only prohibits the debtor from taking |
| 5 | certain affirmative acts. |
| 6 | It says, specifically, PAX, the debtor, the |
| 7 | committee, and the creditors, the two creditors who are |
| 8 | parties to the agreement "Shall not take any act," and then |
| 9 | it goes on to say, "to assert, create, perfect, or enforce |
| 10 | any right, title, lien, or other interest in the escrow |
| 11 | funds" |
| 12 | Here, I think it's important to focus on the |
| 13 | relief that the trustee is actually seeking in Counts 2 and |
| 14 | 3.
In Count 2, the trustee is seeking a ruling from the |
| 15 | Court that HK USA is and always has been the debtor's alter |
| 16 | ego, including at the time the debtor and HK USA entered |
| 17 | into the stipulation. |
| 18 | Now, because HK USA, as this theory goes, is the |
| 19 | debtor's alter ego, then HK USA and all of its property are |
| 20 | property of the estate by operation of law.
This includes |
| 21 | the 37 million which is property of HK USA. |
| 22 | This is not a case where the trustee is seeking to |
| 23 | claw back the \$37 million through an avoidance action or |
| 24 | recover it as damages.
As it relates to Counts 2 and 3 -- |
| 25 | or -- and I'm on Count 2 right now, the trustee is simply |
| | |
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| 1 | seeking to confirm that the \$37 million, which is property |
| 2 | of HK USA, is and always has been property of the estate |
| 3 | from the moment it came into HK USA's hands, because HK USA |
| 4 | is the debtor's alter ego. |
| 5 | The third counterclaim is similar in that what the |
| 6 | trustee is seeking a ruling of is that the debtor and now |
| 7 | the estate beneficially owns the equity in HK USA.
In other |
| 8 | words, yeah, the fact -- the idea that HK USA was owned by |
| 9 | Mei Guo was a fiction and that, in fact, the debtor has |
| 10 | always been the beneficial owner of HK USA.
That's asserted |
| 11 | in the alternative to our alter ego claim. |
| 12 | But there again, the trustee is not seeking any |
| 13 | relief with respect to the \$37 million in particular.
If |
| 14 | the trustee prevails on that claim, then he becomes the |
| 15 | owner of the equity in HK USA.
The \$37 million doesn't go |
| 16 | anywhere.
It remains property of HK USA.
But now the |
| 17 | debtor owns HK USA itself. |
| 18 | And I, in fact, have been on the other side of |
| 19 | this recently in a different issue where there's a transfer |
| 20 | of property under an agreement, but there's an agreement |
| 21 | that purports to prohibit the transfer of property from one |
| 22 | entity to another.
And instead of the property itself being |
| 23 | transferred, the transfer occurs at the top level with an |
| 24 | interest in the equity of the company that owns the |
| 25 | property.
That doesn't work, because the agreement in |
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| 1 | question only talks about the property itself and not the |
| 2 | transaction at the next level up.
That's exactly the |
| 3 | situation here. |
| 4 | So even if -- like I said, I don't think paragraph |
| 5 | 12 of the stipulation is implicated by these claims for the |
| 6 | reasons I just discussed.
But even if it was, the |
| 7 | stipulation itself is not binding on the trustee for at |
| 8 | least two reasons. |
| 9 | The first reason -- and this argument is discussed |
| 10 | more in our summary judgment motion which will be address on |
| 11 | the 20th.
That's ECF 186. |
| 12 | But the trustee's position is that HK USA and the |
| 13 | debtor are alter egos and always have been, including at the |
| 14 | time the stipulation was entered into.
If that's true, then |
| 15 | there was no distinction between them.
They were one and |
| 16 | the same. |
| 17 | And it is black letter law, black letter contract |
| 18 | law, that one cannot enter into a contract with oneself.
So |
| 19 | if HK USA and the debtor are the same, and they purported to |
| 20 | enter into a stipulation or an agreement that bound one |
| 21 | another to do things for the other, that's unenforceable as |
| 22 | a matter of law.
We cited several cases in our SJ motion -- |
| 23 | in our summary judgment motion on this point.
Since that's |
| 24 | not part of the record here, I'll note the cases. |
| 25 | Wilbanks vs. Simmons, 2013 WL 9542015.
It's |
| | |
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| 1 | Western District of Texas 2013.
"Where debtor and |
| 2 | counter-party to agreement" -- well, the case -- to |
| 3 | summarize the point in the case, the court said the debtor |
| 4 | and the counter-party to the agreement were alter egos and, |
| 5 | therefore, the agreement was "without legal effect." |
| 6 | Another case is the Animazing Entertainment case. |
| 7 | That's 88 F. Supp. 2d 265 (S.D.N.Y. 2000).
"It is well |
| 8 | settled under contract formation law in New York that there |
| 9 | must be two parties to a contract.
If one of the parties is |
| 10 | wanting, then one of the formal constituents of a legal |
| 11 | transaction is absent." |
| 12 | Persky vs. Bank of America National Association, |
| 13 | 261 N.Y. 212.
That's from 1933.
Same concept. |
| 14 | Moore v. Denslow, 14 Conn. 235.
Same concept. |
| 15 | Lavitman v. Uber Technologies, Inc., |
| 16 | 2015 WL 728187.
That's a Massachusetts state court case |
| 17 | from 2015.
Same concept.
One cannot contract with itself. |
| 18 | Finally, the well-known treatise, Williston on |
| 19 | Contracts, Section 3, Part 2, 4th Edition.
Same concept. |
| 20 | So assuming, which we must for purposes of this |
| 21 | analysis, that the trustee and HK USA are alter egos, then |
| 22 | the stipulation is not enforceable as between them.
And |
| 23 | that does not change simply because certain of the other |
| 24 | parties -- that there are other parties to the stipulation. |
| 25 | Because the issue before the Court, of course, is whether it |
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| 1 | is -- whether the stipulation is enforceable as against the |
| 2 | debtor which they contend renders it applicable to the |
| 3 | trustee.
The question is not whether it's enforceable as to |
| 4 | the committee or PAX or anybody else. |
The other reason which we spend time discussing in our papers as to why the stipulation is not binding on the trustee is because there is an exception in the case law. The general rule -- there are a lot of courts that say typically if a debtor enters into a contract or an agreement, it's binding on a subsequently appointed trustee. But almost all of those cases talk about exceptions to that general rule, including cases that are cited by the counter-defendants.
For example, the Feldman case that they cite, it specifically notes that if there are special reasons for vacating the agreement or order in question, the result may be different. And in that case, the party, the court noted, did not claim that there was any fraud or bad faith by any party that led to the order in question.
Similar statement in the Eastern Airlines case, In Re Ionosphere Clubs case that I believe also is cited by the counter-defendants. The Court noted that there was no allegation of improper conduct.
Here, there is an abundance of allegations of improper conduct. I frankly don't think it is hyperbole at
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| 1 | this juncture to call the stipulation a borderline, if not |
| 2 | full out, fraud on the Court, plain and simple. |
| 3 | To recap the history of what happened, back in the |
| 4 | spring of 2022, the debtor was desperate to avoid the Court |
| 5 | lifting the automatic stay to allow PAX to pursue remedies |
| 6 | before Justice Ostrager.
And HK USA and Mei Guo were |
| 7 | instrumental in helping the debtor to achieve that |
| 8 | objective. |
| 9 | And, again, our allegation, which we are assuming |
| 10 | for purposes of this discussion is true, is that HK USA was |
| 11 | and always has been a sham, the alter ego of the debtor, not |
| 12 | a separate entity, having no independent existence but |
| 13 | rather a mere vehicle for the debtor to use to carry out his |
| 14 | wishes. |
| 15 | HK USA filed a statement attempting to moot the |
| 16 | stay motion.
That's at paragraph 75 of our counterclaims. |
| 17 | HK USA commenced this adversary proceeding to further the |
| 18 | ruse that was being played on everyone.
That's at paragraph |
| 19 | 76 of our counterclaims. |
| 20 | And then, of course, on April 13th, there was the |
| 21 | hearing on the motion to lift the stay.
This is discussed |
| 22 | at paragraphs 79 to 81 of our counterclaims.
During that |
| 23 | hearing, after the Court had made some comments, what is |
| 24 | very interesting is that the debtor's counsel, then Brown |
| 25 | Rudnick, proposed the \$37 million bond that would be posted |
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| 1 | eventually pursuant to the stipulation.
A 15-minute recess |
| 2 | was taken, and then all of a sudden HK USA had \$37 million |
| 3 | with which to post a bond. |
| 4 | So if HK USA is the debtor's alter ego, the entire |
| 5 | exercise was a fraud upon this Court and everybody involved, |
| 6 | because it was the debtor simply using his mere |
| 7 | instrumentality to take money that would be his in the |
| 8 | possession of HK USA and pretending it was not, pretending |
| 9 | that there was separateness, and pretending that HK USA was |
| 10 | not really just doing his bidding. |
| 11 | I don't think anyone would have entered into that |
| 12 | agreement if the Court had already found that HK USA and the |
| 13 | debtor were the alter -- were alter egos.
Nor do I think |
| 14 | the Court would have approved it. |
| 15 | So under these circumstances, I think -- if there |
| 16 | was ever a case where an exception should apply to the |
| 17 | general rule that an agreement by a debtor in possession is |
| 18 | binding on a trustee, it's this case. |
| 19 | I won't discuss it in detail, but I want to direct |
| 20 | the Court to it, because I think it's very important and on |
| 21 | point.
The Alma Energy case that we cite in our papers |
| 22 | which I think counsel alluded to.
It's an Eastern District |
| 23 | of Kentucky case from 2010.
It goes exactly through this |
| 24 | type of analysis. |
| 25 | It was a debtor whose sole member was also a |
| | |
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| 1 | claimant against the debtor.
And there was a settlement |
| 2 | agreement reached.
And the court said, wait a minute, that |
| 3 | sounds like self-dealing.
You had somebody who was |
| 4 | controlling the debtor, and then you had a claimant, and |
| 5 | then there was deal reached. |
| 6 | And the court said we're going to look at this |
| 7 | with heightened scrutiny.
It took note of the fact that the |
| 8 | defendant was an insider.
Took note of the questionable |
| 9 | circumstances related to the debtor's Chapter 11 case, |
| 10 | including failure to make required disclosures, including |
| 11 | the debtor's counsel having acted before another party |
| 12 | before the court, including possible fraud.
And in light of |
| 13 | all of that, the court ultimately held that in that |
| | |
situation, that agreement, that settlement agreement would not be binding on the trustee.
The final thing I would note on the stipulation itself, Your Honor, it's common that a stipulation, especially, I would submit, in a case like this where the debtor was seriously having trouble managing his Chapter 11 process, to include language in a stipulation or an order saying expressly that it's binding on a trustee. We don't have that here.
I think that's indicative of the intent, particularly given that the motion to appoint the trustee was pending at the time, as was a motion to dismiss the
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| 1 | case.
The stipulation actually alludes to the pending |
| 2 | motion to dismiss but not to the motion to appoint a |
| 3 | trustee.
And I think that's very telling. |
| 4 | The other thing that's telling about the text of |
| 5 | the stipulation is that the debtor under that stipulation |
| 6 | has no right to inspect the yacht at all.
And the reason |
| 7 | why that's important, I think, is because if it were the |
| 8 | intent that the stipulation would be binding on a trustee, |
| 9 | that just wouldn't work, because of course a trustee would |
| 10 | have inspection rights. |
| 11 | So I think there's -- I've gone through a lot, but |
| 12 | I think the bottom line because of that is there are |
| 13 | numerous reasons why the stipulation does not preclude the |
| 14 | relief the trustee is seeking. |
| 15 | The last point that I'll conclude on, Your Honor, |
| 16 | is some brief remarks about the fifth counterclaim, which is |
| 17 | the negligence claim.
This claim, I think it's important to |
| 18 | note, assumes that the debtor and HK USA are separate. |
| 19 | And the reason for that is because it's a claim |
| 20 | that seeks to recover damages for negligence.
And if HK USA |
| 21 | is the debtor's alter ego, then there's no reason -- then, |
| 22 | you know, the debtor owns all of HK USA's property, and |
| 23 | there's no reason or ability for the debtor to obtain a |
| 24 | recovery from HK USA.
The trustee would already have all of |
| 25 | its assets. |
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Ho Wan Kwok - April 11, 2023 96 So it's asserted in the alternative in a world where they aren't alter egos and, therefore, in a world where HK USA is acting independently and, you know, furthering its own interests to keep the yacht away from the United States, that's important because that brings it outside the purview of the in pari delicto and Wagoner rule doctrines in that alternative scenario, because it's not the debtor who is the one who is engaging in this conduct. It's HK USA and Mei Guo doing it on their own. The main argument then that the counter-defendants rely on is they say that this claim isn't viable, because there's no duty here. And I think there's very clearly a duty here for a couple of reasons. A duty that one owes to another to not take action that will cause it harm in the context of negligence includes a situation where there is a relationship between the plaintiff and the defendant that would require the defendant to protect the plaintiff. Examples include a parent and child relationship. That's in the Hamilton case. I believe that was cited. And of course, here, Mei Guo is the debtor's daughter. And she was aware that the stipulation existed. And to the extent that she caused HK USA to keep the -- she was aware that Justice Ostrager's contempt order existed. And to the extent that she caused HK USA to keep the yacht
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| 1 | outside of US waters and, therefore, caused the debtor to |
| 2 | incur hundreds of millions of dollars in fines, she had a |
| 3 | duty to not do that. |
| 4 | The other thing that counter-defendants haven't |
| 5 | mentioned that's equally important is that a duty can be |
| 6 | imposed by operation of law such as a statute or, for |
| 7 | example, a court order. |
| 8 | And here, that is critically important, because |
| 9 | Justice Ostrager's contempt order specifically applied to HK |
| 10 | USA.
This is in paragraphs 43 and 44 of our counterclaims |
| 11 | which discusses Justice Ostrager's order and says -- and |
| 12 | this was the October 2020 restraining order that was in |
| 13 | place by Justice Ostrager at the time -- applied to HK USA |
| 14 | because it was the registered owner of the Lady May.
The |
| 15 | stipulation itself by its terms said that it applied to |
| 16 | Mr. Kwok and/or the registered owners of the Lady May. |
| 17 | The registered owner of the Lady May at the time |
| 18 | was unquestionably HK USA.
Thus, the order itself by |
| 19 | Justice Ostrager imposed this duty, placed HK USA on notice. |
| 20 | And by defying that, knowing that the consequences would be |
| 21 | for the debtor to incur hundreds of millions of dollars in |
| 22 | contempt fines, HK USA is liable for negligence. |
| 23 | I think that covers my remarks, Your Honor.
I |
| 24 | wanted to be thorough.
I apologize for taking a lot of the |
| 25 | Court's time.
I'm happy to answer any questions.
But |
Ho Wan Kwok - April 11, 2023 98 that's all I had for now. THE COURT: I don't think I have any questions at the moment. MR. BASSETT: Thank you. THE COURT: Thank you. Counsel, do you have any response? MR. DELLA FERA: For the record, Sam Della Fera, Chiesa Shahinian & Giantomasi, for the movants. Only that I just wanted to note that Justice Ostrager's order did not impose any duty, statutory or otherwise, on Mei Guo. Perhaps HKI or HK USA. It's been referred to by both monikers today. Certainly Ms. Guo had no duty. And to suggest that a parent's duty to a child flows the other, a child's duty to a parent, trustee offers no authority for that proposition, Your Honor. So we -- as I've argued, as you've heard counsel mention, we submit that there was no duty owed by this independent party for purposes of this counterclaim asserted. In the alternative, HKI, an independent third party, owes no duty to the debtor. To the extent any duty was imposed by Justice Ostrager's order, that does not flow to Ms. Guo. Nor does any duty flow from Ms. Guo as the debtor's daughter to the debtor vis-a-vis Justice Ostrager's order and the need to return the Lady May to the territorial Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 98 of
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| 1 | | waters of the U.S. | | Thank you, Your Honor. | | | |
| 2 | | | THE COURT: | Thank you. | | | |
Anything further, Attorney Bassett? MR. BASSETT: No, Your Honor. Thank you. THE COURT: Okay. Thank you.
As I think both counsel has noted during argument, the motion to dismiss the adversary proceeding does have an impact on the pending motion for summary judgment. And I have reviewed your briefs and listened to the argument today. I feel that I am substantially familiar with your arguments. I need to take a little time to look at them again given what you've said on there record today, take a look back at some of the cases that you've noted. I have looked at quite a few of those cases, I would say.
And I am, I believe, you know, going to be in a position to rule shortly. I do think the parties briefed the issues well and made the arguments for their respective clients well. But I will be ruling on this in short order.
Does anybody else have any other issues they want to raise with the motion to dismiss? Okay. Then the motion to dismiss, subject to some further review of what was raised in the arguments, most of which I -- as I said, I'm familiar with and I believe have been raised in the papers, then, you know, the ruling will be coming soon, unless something occurs that I'm not aware of at this point in
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Ho Wan Kwok - April 11, 2023 100 time. Okay? I believe that that concludes all of the matters in the Kwok cases and the adversary proceedings today. Does anyone -- is there something else that someone wants to discuss before we adjourn court today? Maybe. Oh, yes, there is, actually. It's not on the calendar today, but -- and I thank you for the reminder. We have hearings next week on a number of issues, including the issue about the debtor's assertion of his Fifth Amendment rights. And Brown Rudnick filed a motion to expedite I think yesterday, last night maybe. I mean, I can look at it right now very quickly. I don't know if the trustee's planning to respond to that. But they're looking to have -- Brown Rudnick as now criminal counsel is looking to have a hearing scheduled next week along with the hearing on the Fifth Amendment privilege issue seeking basically a stay to -- with regard to the motion to compel compliance and the Rule 2004 subpoena. So that was filed actually -- yes, it was filed last night. Oh, I'm not sure what time. I shouldn't say that. I can find out in a second. I'm inclined to put that matter on the calendar for next Tuesday as well, but if the trustee wants an opportunity to respond to that motion, I can give you some time, not a substantial amount of time, but I can give you
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| 1 | some time to respond.
I don't know if you -- it was filed |
| 2 | at 5 -- at 6:00 last night.
Okay?
So 24 hours ago. |
| 3 | MR. DESPINS:
Your Honor, would it be possible, |
| 4 | because we already have a hearing on the 20th as well, to |
| 5 | have that matter heard on the 20th?
Or -- |
| 6 | THE COURT:
Let me take a look. |
| 7 | MR. DESPINS:
All right. |
| 8 | THE COURT:
Maybe I'm wrong about the 18th. |
| 9 | There's some matters on the 18th, and there is a matter on |
| 10 | the 20th.
So you're probably right, Trustee Despins.
Just |
| 11 | with so many things in front of me and dates, I'm -- I may |
| 12 | have misspoken.
So just give me a second. |
| 13 | MR. DESPINS:
I know the feeling.
But I think |
| 14 | that the 20th is the summary judgment motion on Count 2. |
| 15 | (Counsel confer) |
| 16 | THE COURT:
The 20th is the summary judgment |
| 17 | motion on Count 2 at 9:30 a.m.
The motion that was filed by |
| 18 | the debtor's criminal counsel -- appears that Brown Rudnick |
| 19 | is representing the debtor in the proceedings in the |
| 20 | Southern District of New York -- is seeking to stay the -- |
| 21 | to compel compliance.
But I think that might -- let me look |
| 22 | at the 18th.
Yeah, the motion to compel compliance is on -- |
| 23 | that's the UBS compliance, though.
Just give me a minute. |
| 24 | There's so many pleadings that were filed last night.
I |
| 25 | need to look for a moment. |
Ho Wan Kwok - April 11, 2023 102 UNIDENTIFIED SPEAKER: Yeah. That's on the 18th, Your Honor, the -- THE COURT: Right. UNIDENTIFIED SPEAKER: Yeah. THE COURT: That's the UBS I'm talking about. I'm also -- there's a number of things on the 18th. Just give me one moment, please. I'm just pulling up a document. So the motion to expedite hearing was also filed last night in connection with the motion to -- for a stay to compel the debtor to comply with the Rule 2004 examination subpoenas. The motion to expedite the hearing, which is 1651, it's the trustee's motion for order to show cause why the debtor should not be held in contempt of court for failure to comply with the January 20 order which is on for hearing on April 18, 2023. So that's separate and distinct from the summary judgment motion. The issue I'm raising is not related to the motion to dismiss and the summary judgment motion. It's motions that were filed last night by Mr. Kwok's criminal counsel with regard to the trustee's motion for order to show cause why the debtor should not be held in contempt of court. Now, we -- everyone recalls the trustee filed -- I'm sorry. The debtor filed a response to that motion Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 102 of
Ho Wan Kwok - April 11, 2023 103 asserting his Fifth Amendment privilege. But this motion that the debtor's criminal counsel filed last night seeking an expedited hearing for next Tuesday relates -- MR. DESPINS: Yes. THE COURT: -- in my opinion to the trustee's motion for order to show cause. MR. DESPINS: It probably does, Your Honor. So what we're thinking is to give us more time to respond, if we could move that to the 20th. THE COURT: Well, I -- you'd have to get the agreement of Brown Rudnick on that, I think. I mean, they're asking for this on -- I have no -- I don't -- I have no idea what's going on in the criminal proceedings, but they're asking for the hearing on their motion that they filed yesterday afternoon, last night, 24 hours ago, to be scheduled along with the trustee's motion to show cause why the debtor shouldn't be held in contempt. Okay? We already all know what happened. The debtor asserted his Fifth Amendment privilege before there was an indictment. Now there's an indictment. MR. DESPINS: Correct. But given that the two are connected -- THE COURT: Well, why don't you just tonight ask Brown Rudnick what their position is. If you -- MR. DESPINS: We will. Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 103 of
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| 1 | THE COURT:
-- both agree that it can be on the |
| 2 | 20th, it can be on the 20th.
That's fine.
You know, we're |
| 3 | already here, so it won't make really any difference. |
| 4 | We might just -- and the 20th summary judgment |
| 5 | motion I think starts at 9:30.
I think that's what it says. |
| 6 | Let me triple check since it's difficult to keep all these |
| 7 | things in order.
But we will do that. |
| 8 | MR. DESPINS:
That's correct, Your Honor. |
| 9 | THE COURT:
9:30. |
| 10 | MR. DESPINS:
Yeah. |
| 11 | THE COURT:
So if the parties agree to that, if |
| 12 | the trustee and Brown Rudnick agree to continue the matter |
| 13 | on the 18th regarding the order to show cause, regarding |
| 14 | contempt for failure to comply by Mr. -- by the debtor to |
| 15 | the 20th, that's fine. |
| 16 | But there's still other matters on the 18th as |
| 17 | well. |
| 18 | MR. DESPINS:
Understood.
Understood, Your Honor. |
| 19 | THE COURT:
Okay? |
| 20 | MR. DESPINS:
So we will send an email to |
| 21 | Courtroom Deputy -- |
| 22 | THE COURT:
Yes, please. |
| 23 | MR. DESPINS:
-- with an update tomorrow morning. |
| 24 | THE COURT:
Yes.
Because I have not ruled on this |
| 25 | motion to expedite yet, although it was brought to my |
| | |
Ho Wan Kwok - April 11, 2023 105 attention before we came out today -- this afternoon on these hearings. All right? So and then if you have an agreement about continuing it, I'd like -- if you have an agreement that the expedited hearing can be held and continued to April 20, then I think you'd still need to file some response to the substantive motion probably by the 18th. Okay? MR. DESPINS: Yes, Your Honor. THE COURT: All right. I think that will -- in order for the Court to be as -- understanding the parties' positions as much as possible prior to the hearing, that's what I would like to have happen. Okay? MR. DESPINS: And, Your Honor, may I ask whether it's possible for me to attend that hearing by Zoom? I will not be arguing. Mr. Bassett will be. But can I participate by Zoom? THE COURT: Yes. MR. DESPINS: Okay. Thank you, Your Honor. THE COURT: All right. I think that does conclude everything then on today's calendar, so court is adjourned. THE COURTROOM DEPUTY: All rise. Court is adjourned. (Proceedings concluded at 5:45 p.m.) Case 22-50073 Doc 1683 Filed 04/20/23 Entered 04/20/23 11:01:19 Page 105 of
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| 2 | I, CHRISTINE FIORE, Certified Electronic |
| 3 | Court Reporter and Transcriber, certify that the foregoing |
| 4 | is a correct transcript from the official electronic sound |
| 5 | recording of the proceedings in the above-entitled matter. |
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| 8 | April 18, 2023 |
| 9 | Christine Fiore, CERT |
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