Guo Wengui / Miles Guo — bankruptcy case · ECF #1929

v.

Proceedings recorded by electronic sound recording, transcript produced by transcription service. Fiore Reporting and Transcription Service, Inc.

#1453 MOTION FOR ORDER TO SHOW CAUSE WHY DEBTOR, MEI GUO

and HK(USA) SHOULD NOT BE HELD IN CONTEMPT OF COURT FOR FAILURE TO COMPLY WITH ORDER COMPELLING

- #1649 MOTION FOR A LIMITED STAY OF ORDER GRANTING IN PART MOTION TO COMPEL COMPLIANCE WITH RULE 2004 SUBPOENA

APPEARANCES: Chapter 11 Trustee: LUC A. DESPINS, ESQ. Paul Hastings 200 Park Avenue New York, NY 10166 For the Chapter 11 Trustee: NICHOLAS A. BASSETT, ESQ. Paul Hastings LLP 200 Park Avenue New York, NY 10166 PATRICK R. LINSEY, ESQ. Neubert Pepe & Monteith, PC 195 Church Street New Haven, CT 06510 For HK International Funds ERIC A. HENZY, ESQ. Investments, LLC and JAMES M. MORIARTY, ESQ. Mei Guo: Zeisler & Zeisler, P.C. 10 Middle Street, 15th Floor Bridgeport, CT 06604 For the Creditors Committee: IRVE J. GOLDMAN, ESQ. Pullman & Comley 850 Main Street Bridgeport, CT 06601 Special Criminal Defense WILLIAM BALDIGA, ESQ. For the Debtor: Brown Rudnick One Financial Center Boston, MA 02111 For U.S. Bank National Assn, LATONIA C. WILLIAMS, ESQ. as escrow agent: Shipman & Goodwin, LLP One Constitution Plaza Hartford, CT 06103 Ho Wan Kwok - June 13, 2023 4 (Proceedings commenced at 1:01 p.m.) THE CLERK: 22-50073, Ho Wan Kwok and Genever Holdings, LLC; 22-05003, HK International Fund Investment (USA) Limited vs. Despins; 23-05012, U.S. Bank National Association, as escrow agent vs. HK International Funds (USA) Limited. THE COURT: 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. Nick Bassett from Paul Hastings on behalf of the Chapter 11 Trustee. THE COURT: Good afternoon. MR. LINSEY: Good afternoon, Your Honor. Patrick Linsey for the trustee. THE COURT: Good afternoon. MR. GOLDMAN: Good afternoon, Your Honor. Irve Goldman, Pullman & Comley, for the creditors committee. THE COURT: Good afternoon. MR. HENZY: Eric Henzy for the debtor, Mr. Kwok. THE COURT: Good afternoon. MR. MORIARTY: Good afternoon, Your Honor. James

Ho Wan Kwok - June 13, 2023 5 Moriarty from Zeisler & Zeisler for HK International Funds Investment (USA) Limited in both adversaries, 22-05003 and 05012. THE COURT: Thank you. MR. BALDIGA: Good afternoon, Your Honor. William Baldiga, Brown Rudnick, special criminal defense counsel to the debtor. THE COURT: Good afternoon. And then we have appearance on the -- on the remote appearance of Attorney Williams. MS. WILLIAMS: Yes. Good afternoon, Your Honor, and thank you so much for the opportunity to appear remotely. Latonia Williams of Shipman & Goodwin LLP, appearing on behalf of the interpleader plaintiff, U.S. Bank National Association, as escrow agent. THE COURT: Good afternoon. And as many of you may know, I was a partner at Shipman & Goodwin for years. I know Ms. Williams. Does any -- if anybody has a problem with me addressing these issues, I'd like you to let the Court know. Okay. Hearing nothing. Then we'll proceed. Trustee Despins, how would you like to proceed? MR. DESPINS: I think the first matter would be the stay pending appeal, Your Honor, which is the -- Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 5 of 100

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Ho Wan Kwok - June 13, 2023 6 Zeisler's motion. THE COURT: Okay. Go right ahead. Attorney Moriarty, are you handling that matter? MR. MORIARTY: Yes, Your Honor. MR. BASSETT: Your Honor, I did just want to -- apologies. I did just want to note that in terms of process and presentation of our position, I don't know if the Court wants to hear oral argument at the end. But we were planning to present some evidence by having the trustee provide testimony to the Court in support of the harm to the estate and otherwise that would be suffered in the event the Court were to grant a stay. So I don't know if the Court wants to do the evidentiary portion first or -- THE COURT: Well, maybe you and Attorney Moriarty need to discuss that for a second. I mean, I can do it either way. We can have Attorney Moriarty make his presentation, and then you can make your presentation. And that could include evidence. However you'd like to proceed. MR. BASSETT: That would be fine with me, Your Honor. I just didn't want him to start without having -- THE COURT: Does that work for you, Attorney Moriarty, or do you want a moment? MR. MORIARTY: Your Honor, I'd like a moment, because I was completely unaware that the trustee intended

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Ho Wan Kwok - June 13, 2023 7 to call a witness. THE COURT: Okay. Well, then take a moment. MR. MORIARTY: Thank you. (Counsel confer) MR. MORIARTY: Your Honor, James Moriarty for HK International. So Attorney Bassett is going to present his witness first. I just want to note my objection. I was unaware that a witness would be presented today. I had no advance notice that evidence would be offered. I will note that in -- THE COURT: Well, would you like to move to continue the hearing? MR. MORIARTY: I would, Your Honor. And just to be fair, in their brief which was filed yesterday -- THE COURT: Well, that was when it was ordered to be filed. MR. MORIARTY: Correct. I agree. There was a notation in the brief that there would be some information offered that would show the amount of interest that's currently being earned on the escrow versus what could be earned if there was an investment in T-Bills. I anticipated that that would be some type of demonstrative exhibit. And if that's all that they were going to offer, I would be okay with that. But my understanding is that it will go beyond that. So I would like to have the hearing

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Ho Wan Kwok - June 13, 2023 8 continued for a week. THE COURT: Attorney -- well, I'm not available in a week, so. Attorney Bassett? MR. BASSETT: Your Honor, as I explained to Attorney Moriarty, I would anticipate that Mr. Despins' testimony would take 10, 15 minutes top. And as I also explained, the testimony that we intend to offer is going to track almost exactly what we had stated in our papers are the categories of harm that this estate will suffer in the trustee's view if a stay were granted. So it's really just the evidentiary basis for the statements we've made. I think it was transparent from our filing that we would be offering evidentiary support for what we had said in our objection. MR. MORIARTY: It would have been transparent in the objection if they had said that they were going to be offering Trustee Despins as a witness. They could have obviously attached an affidavit also, which I believe the Court would have considered. They didn't do that. So now we're here for the hearing, oral argument, and the trustee is offering to call a witness to provide testimony with no advance notice at all. THE COURT: Well, if you'd like to continue the hearing, that's fine, but I'm not available next Tuesday or

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Ho Wan Kwok - June 13, 2023 9 the following Tuesday. So it'll have to be into the beginning of July. MR. MORIARTY: Okay. MR. BASSETT: And, Your Honor, on that note, the fundamental problem we have, which we've already addressed with the Court, I think, at the status conference we had last week and should be a fundamental component of the argument before the Court today, is that we have appellants who are, in our view, actively in defiance of the order of the Court. They're acting as if they are entitled to a stay pending appeal until there is a hearing on a motion -- THE COURT: There is no stay pending appeal. So they can act however they would like to act, but there's no stay pending appeal until there is a stay pending appeal, unless and until there is a stay pending appeal. They're saying they're not ready to proceed on their own motion. MR. BASSETT: But as -- THE COURT: So there's no stay pending appeal. MR. BASSETT: The issue, Your Honor, though, of course, is that their position is that these funds are in escrow, and they can't be released. THE COURT: Well, didn't we just get pleadings filed that the bank is willing to turn over the funds into the Court? MR. DESPINS: Yes.

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Ho Wan Kwok - June 13, 2023 10 THE COURT: I think that's what I just saw within the last half an hour, right? Attorney Williams is here. I think she can respond to those issues. I mean, the -- it's still -- I understand your concern in that you want the trustee to be in control of those funds. I understand that. And I understand that the trustee wants to be in control of those funds. But I also understand that there's an interpleader action that's been filed. The plaintiff in that interpleader is willing to transfer the funds minus -- I think, I didn't read it all thoroughly yet, so -- but I would assume minus any fees that it was owed as the escrow agent to be paid into the Court's registry. And then we're going to have to have an issue -- the debtors clearly -- the debtor, HK, whomever, clearly opposed that. You're correct that if I continue this hearing I'm, in fact, giving them -- you could argue that I'm giving them a stay pending appeal. So then we'll have to have the hearing as soon as possible. But I -- right now, it is what -- where it is. And the earliest the Court could have a hearing -- continue the hearing to is the 27th of June, which is two weeks from today. But, Mr. Moriarty, you got to be ready to go. I mean, it's your motion. Otherwise, you are -- by not

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Ho Wan Kwok - June 13, 2023 11 turning over the -- your clients are in violation of this order already. That's clear. It said that they were to turn over the funds to the trustee. You have filed an appeal. You haven't gotten a stay pending appeal. Now you're saying -- and I understand that you want a continuance, because you didn't know that the trustee was going to testify. Okay. I'll agree to that for now. But this is not -- you're going to either get a stay or you're not going to get a stay. And right now, there is no stay. So every day that there isn't a stay and that your client is in violation of an existing order, your client is risking further -- you know, further relief could be sought against your client, even if you ultimately get a stay pending appeal, because you're in violation of that order, and you have been since June 2nd. MR. MORIARTY: I -- THE COURT: So it's up to you. Do you really want to wait another two weeks, or do you want to go forward today? MR. MORIARTY: Well, Your Honor, I -- let me -- let me confer with my -- with Mr. Henzy. But before I do that, I just want to address what the Court just said. The money is in escrow. There is an escrow agreement. The -- THE COURT: I know all about that --

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Ho Wan Kwok - June 13, 2023 12 MR. MORIARTY: So -- THE COURT: -- Attorney Moriarty. MR. MORIARTY: My client is not in violation of a court order, because my client doesn't have the unilateral ability to get the funds to deliver them to the trustee. THE COURT: Well, I'm not sure I agree with you on that, number one. Number two, I entered an order finding that those funds are property of the estate and directed your client to turn them over. So the escrow agent doesn't have a problem. You're not going to get sued by the escrow agent. Who's going to sue you if they get turned over right now? The only people that could sue you would be the trustee or the escrow agent. Neither one of them is going to sue you. MR. MORIARTY: There is a -- THE COURT: So what's the problem? MR. MORIARTY: There's a prior order that Your Honor entered related to -- the stipulated order related to bringing the Lady May to Connecticut, which includes the escrow agreement. The escrow agreement has specific provisions as to when the money can be turned over, and it includes a final, non-appealable order which we do not have yet. So there are competing orders that this Court

1 entered. There's the stipulated order which has the escrow 2 agreement as an exhibit to it, and then there's the order 3 that was entered on summary judgment. 4 THE COURT:

5 funds regardless of your argument about a final 6 non-appealable order. You could agree to do that.

7 could direct it. But you don't want to do that.

8 understand that you don't want to do that.

9 in violation of the order that found that the funds are 10 property of the estate. 11 MR. MORIARTY: Okay. 12 THE COURT: So that's where we are.

13 you want to take a few minutes to decide whether you want to 14 proceed today or two weeks from now, that's up to you.

16 MR. MORIARTY: All right.

17 forward today. 18 THE COURT: You'll proceed today? 19 MR. MORIARTY: Yes. 20 THE COURT:

21 with regard to -- that you've made on the record with regard 22 to the trustee going to be submitting some evidence in 23 response to your motion for relief from -- oh, your motion 24 for stay pending appeal? 25 MR. MORIARTY: Correct.

Ho Wan Kwok - June 13, 2023 14 objections that I may make as he testifies. THE COURT: That's fine. MR. MORIARTY: Okay. THE COURT: Okay. It's your motion, though, so are you -- oh, you both agreed that you're going to proceed first? MR. MORIARTY: Yes. Well -- THE COURT: That the trustee is going to proceed with the evidence first? MR. MORIARTY: So that I can then address it in my argument. THE COURT: Fine. That's fine. That's fine. MR. BASSETT: And then he'll do his argument. Then I'll respond and -- THE COURT: That's fine. MR. BASSETT: Your Honor, the trustee would -- THE COURT: Trustee Despins? MR. BASSETT: The trustee would -- or the -- THE COURT: Could you please come to the stand? MR. BASSETT: The trustee would call the trustee to the stand. THE CLERK: Please raise your right hand up. LUC DESPINS, TRUSTEE, SWORN THE CLERK: Please state your name and address for the record. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 14 of

Ho Wan Kwok - June 13, 2023 15 THE WITNESS: Luc Despins. Address -- work address is 200 Park Avenue, New York, New York, 10166. DIRECT EXAMINATION BY MR. BASSETT: Q Mr. Despins, good afternoon. Mr. Despins, as the trustee appointed in this case, you are in the process of conducting an investigation into the debtor's assets and affairs. Is that correct? A That's correct. Q And you also understand that we're here today on a motion that has been filed by HK USA and Mei Guo for a stay pending appeal of this Court's order ordering that funds sitting in escrow, approximately \$33 million, plus funds in a reserve account are property of the estate. You understand that? A That's correct. Q Do you have a view, Mr. Despins, as to how your investigation and/or the estate more generally would be impacted if the Court were to grant the stay pending appeal -- A I do. Q -- that the HK parties are seeking? And what is that view? A That it would have a material impact on the progress and continuation of our investigation. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 15 of

Why is that?

For several reasons.

3 be very clear about this, you know, we intend to use the 4 funds to pay Paul Hastings what -- well, whatever the Court 5 will allow in terms of its professional fees.

6 that, we're going to have a material issue with the 7 continued involvement of certain attorneys working on the 8 case.

What do you mean by that? Has -- strike that.

10 date, has Paul Hastings been paid anything on account of the 11 services it's provided to the trustee in this case?

No, it has not.

And how is it that that would impact the ability of you 14 to, I think, as you put it, retain the help of associates on 15 the case?

So basically we're in -- the group -- the financial 17 restructuring group, now we're in an over-capacity position. 18 That means that we have more work than we can handle so 19 that -- and I'm sure Your Honor in private practice has 20 experienced that.

21 staff their cases. 22 And, you know, we're -- as I often say jokingly, this 23 is not Paulhastings.org. It's Paulhastings.com.

24 profit-making enterprise.

25 where I'm going to continue to control a number of key

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1 associates in the department to work on the case where we're 2 not getting paid.

3 elsewhere, and I'll have to release them to other paying 4 clients, unfortunately. 5 And that -- and there's a huge prejudice to not only me 6 personally but to the case, because there's some associates, 7 and they're mid-level to senior associates, who have spent 8 the better part of last year working on this case.

9 them, we're in a world of hurt, because they know every 10 aspect of the case. 11 So I know generally what's going on, and I think I know 12 a lot about it.

13 document in this file that says XYZ, which there's no way 14 that I or, I'd venture say, even you would be able to do 15 that. Because we're not, and we should not be, in the weeds 16 the way they are.

17 really material impact on our work.

And what you're saying is that you fear losing them to 19 work on matters with paying clients?

Correct.

And is it -- I assume from what you're saying that it's 22 atypical for Paul Hastings to take on an engagement like 23 this where it's essentially on a contingency basis?

I've never seen -- I've never had a receivable of this 25 size. I've never -- you know, we -- even at the firm, I

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1 mean, I got probably three or four calls from the -- 2 essentially the CEO of the firm about this receivable.

3 it's unprecedented in terms of what we -- what we have ever 4 experienced.

Other than using some portion of the funds to pay fees 6 of counsel, of course, subject to the Court's approval, is 7 there anything else that you would do if you did have access 8 to the \$33 million in escrow funds if there was not a stay?

Yes. As I mentioned in court before during the 10 preliminary injunction trial, the -- we're at a phase in the 11 case where we've identified, although we get surprises all 12 the time. But we've identified the hard assets.

13 there's a apartment.

14 now know there's another smaller yacht.

15 a house in Greenwich, et cetera, et cetera. 16 But what is unknown precisely is the cash that flowed 17 between these dozens, if not hundreds, of entities, and the 18 tracing of those funds.

19 lawyers kind of ends in the sense that we know that there's 20 millions of dollars that flowed through these various 21 accounts, but we need a professional to do asset tracing. 22 And that's where we are in the case in the sense that, 23 yes, there are a lot of skirmishes regarding the hard 24 assets, but those, I venture to say, are progressing nicely. 25 But the -- what -- where we have not made progress yet is on

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1 the tracing of the hundreds, if not thousands, of transfers 2 and to determine which account they ended up in.

3 accounts in the U.S.? Are they abroad?

4 are they in the U.K., or are they in the United Arab 5 Emirates where our ability to recover those funds is maybe 6 more difficult? 7 So there's a whole panoply of issues that a financial 8 expert, which we have not retained to date, would need to

work on. And, you know, these people will need to get paid. They're not going to do this on a contingency basis. The reason being is that the only way they would do that, they would say, okay, well, I'm first. I'm going to be first as to whatever recovery is obtained.

And of course we're going to say no, because we are owed money. And Mr. Linsey's firm is owed money. And the British Virgin counsel is owed money. And the U.K. counsel is owed money. And, therefore, we don't have an asset to give to these people on a contingency basis, and we don't have cash to pay them on a regular basis unless we have access to the funds.

Q And if -- and I'm not going to ask you to reveal anything that, you know, remains sort of nonpublic information that's part of your ongoing, privileged investigation. But if you were able to hire the types of professionals that you just described and pursue this type

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1 of investigation, do you, as the trustee, have a ballpark 2 sense of whether you'd likely be successful in obtaining 3 recoveries for the estate? 4 MR. MORIARTY: Objection. Speculation. 5 THE COURT: Overruled. 6 THE WITNESS:

7 not the stuff, the assets that have been identified.

8 know what they are -- those are, the yacht and all that and 9 the apartment, the house in Greenwich, the \$10-million-plus 10 airplane proceeds.

11 litigation that we have commenced where, you know, there's a 12 lot more money involved. 13 So just on that, there's going to be a lot, you 14 know, more money than the 33- or 37 million that's at stake. 15 But in terms of what has not been identified precisely, it's 16 obvious to me in my professional judgment that, you know, 17 the family -- the debtor and his family had a game plan here 18 which is to not disclose assets. 19 MR. MORIARTY: Objection, Your Honor.

20 outside the -- it's not responsive to the question. 21 THE COURT:

22 that part of the answer.

23 record the part of the answer that Trustee Despins talked 24 about the hard assets, and he thinks that there's more than 25 \$33 million out there than other -- than -- other than the

1 funds in the escrow.

2 another question, he can do so. 3 BY MR. BASSETT:

Okay.

5 on all the specifics.

6 based on the investigation that you've conducted this far, 7 are you optimistic that in addition to the hard assets that 8 you've identified, there are other potential assets that the 9 trustee may be able to recover if it conducts this type of 10 investigation?

Yes, I am.

In addition to not being able to hire these types of 13 advisors to conduct the type of investigation that you have 14 described, is there anything else that you would do as 15 trustee if given access to the funds in the event there is 16 not a stay?

Well, we would invest the funds or the parts that's not 18 used to pay professional fees, buying treasury bills, for 19 example, something that is guaranteed by the United States.

Do you know, by the way, what interest, if any, the 21 funds are earning in the escrow account that they're 22 currently in?

Yes. They're earning half a percentage point.

24 that's like .5 -- .05 percent. I'm sorry.

And do you have an understanding based on publicly

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1 available information that you researched prior to the 2 hearing what roughly a treasury bill would return?

Yeah. About 5 percent, 5.1 right now for -- it depends 4 on the term. It varies between six months and a year.

5 it -- it's about in the 5 percent range.

And at the risk of asking you to do a little math, 7 which I know you've done, do you know if, for example, the 8 trustee on behalf of the estate were to invest \$20 million 9 worth of the escrow funds over the next six months or a 10 year, you know, what that interest income would be?

It would be about -- the delta would be about a million 12 dollars over a period of a year.

Over a year? Okay.

14 question that I asked, I just want to make sure, is there 15 anything else that you haven't yet said that you would do on 16 behalf of the estate in the absence of a stay?

Yes. Well, there are a number of, I would call, 18 projects that have not been fully started because of a lack 19 of funding. But that would involve recovering assets in 20 certain jurisdictions -- I'm not going to say more than 21 that -- on that -- and also other types of claims with a 22 broader list of targets, just, you know, without elaborating 23 on that.

And I think this may be the last question that I have 25 for you. It's one I meant to ask earlier.

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1 about the types of investigation that you would like to 2 pursue if you were able to retain the right professionals to 3 do that. Is there any reason in your mind why you couldn't 4 just wait? Let's say it takes the appeal three to six 5 months to run its course, conservatively.

6 reason you couldn't wait until the end of then to conduct 7 this investigation, in your mind?

The problem with that approach is that the information 9 is getting stale. We know that there are accounts that have

-- dozens of accounts that have been opened 11 over the last, you know, two years.

12 sorry to mention this but that from the Zeisler disclosure 13 as to whether they're getting paid, that there are new 14 entities all the time that are created with new names and 15 all that. That's not speculation. That's reality. 16 And so that means that in two months from now, the 17 information we have today will be completely stale.

18 we have to restart it and at a huge cost to the estate.

When you say the information could be stale, it's if 20 there's -- you know, if the information that you have would 21 show that money may exist in a particular account today, 22 that money may be in a different account later?

23 you're saying?

Yeah. 25 MR. MORIARTY: Objection. Leading.

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1 THE COURT:

2 Attorney Bassett, please? 3 BY MR. BASSETT:

Yeah. Can you just explain what you mean by the 5 information being stale?

Well, we have that in a number of cases where we have 7 bank accounts and at the end the account was closed.

8 same thing with Golden Spring, you know, now which I had to 9 find documents regarding Golden Spring. They're closed. 10 They don't exist anymore, because it went on to another 11 company. And so it went to another account. 12 So we have to take the last entry in the account at 13 Chase or Citibank and see where it went and then find those 14 bank accounts and then hope that they're still open.

15 would say that they don't have a long life span.

16 they don't stay open for more than six months or so. 17 MR. BASSETT: Thank you.

18 questions, Your Honor. 19 THE COURT: Okay. Thank you. 20 Cross-examination, Attorney Moriarty? 21 MR. MORIARTY: Thank you, Your Honor.

23 BY MR. MORIARTY:

Good afternoon, Trustee Despins.

Good afternoon.

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You became trustee -- the Court approved your 2 appointment on July 8, 2022?

That sounds right.

And how much money was in the debtor's estate at the 5 time that your appointment was approved?

I forget, but de minimis. You know, 10-, 15,000.

Okay.

8 approved, there was 10- to \$15,000 in the estate, and there 9 was no guaranty that there was going to be additional assets 10 coming in, correct?

No guaranties. That's correct.

All right.

13 that you accepted this appointment that the professionals 14 you engaged could run up very high bills and not get paid, 15 right?

Yes. Except that now we found the money.

And at the time that you accepted the engagement and 18 even going forward months into that, there were no assets in 19 the estate, right?

I'm sorry. Can you rephrase that?

Sure. So let's say August of 2022.

22 time, had you on behalf of the debtor's estate recovered any 23 assets?

No.

September of 2022, had you recovered any assets?

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1 A Some but not a lot. 2 Q Okay. What was the date of the first material -- and 3 by material I'll say more than a million dollars -- asset 4 that you recovered on behalf of the estate? 5 A It would be the entry of summary judgment on the Lady 6 May. And I forget the precise date, you know, but -- 7 Q We'll agree that it was in late March of 2023?

9 Q Is that fair? 10 A Something like that. 11 Q And the fee application that Paul Hastings filed 12 recently, do you remember the date through which the 13 billings are sought? 14 A Through February. 15 Q Okay. So February of 2023? 16 A Correct. 17 Q So all the way through February 2023, Paul Hastings 18 incurred more than \$12 million in attorney's fees, right? 19 A Correct. 20 Q And there was no guaranty that they were getting those 21 paid, right? 22 A That's correct. 23 Q Now, this -- the \$33 million that's in escrow with U.S. 24 Bank, and there's another 3- or so that you're holding in 25 the repair reserve, correct?

1 A Correct. 2 Q So let's say 36 million. Is that fair? 3 A Something around -- it's 35- and change or 36-. Sure. 4 Q And you as trustee obtained a prejudgment remedy of 5 attachment against HK USA, correct? 6 A Correct. 7 Q And have you attached the funds that are in the escrow 8 account? 9 A I'm -- well, I'm not sure we've perfected this 10 attachment, but certainly that was the intent. 11 Q Okay. Did you attach the funds that you're holding, 12 the \$3 million? 13 A I'm not sure I would -- we would do that given that 14 we're -- I'm the account holder, but -- 15 Q Okay. But you're not going to give anybody that money,

17 A No. That's correct. 18 Q All right. So there's \$36 million.

19 escrow. You're holding 3 million.

20 attached. But we can agree that it will not be released at 21 least subject to the terms of the escrow agreement and court 22 order, correct? 23 A Well, I'm not sure the escrow agreement governs, but it 24 will not be released without the Court directing that it be 25 released.

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Okay. So would you agree with me that Paul Hastings 2 invoices, the fee application through February of 2023, to 3 the extent that you are successful on appeal of the Court's 4 order granting you summary judgment on the second 5 counterclaim, is secure?

Well, that depends as to the continuing burn rate 7 and -- for us and the other professionals in the case.

Well, your counsel estimated three to six months 9 conservatively for the appeal to run its course.

10 to February -- which you would agree with me is nine months?

Yes.

I mean, maybe I'm off.

But that was before the district court. But go ahead. 14 Yes.

Actually, I am off. It's not nine months.

16 months. So it's two-thirds of a year, right?

Okay.

And so there's \$12 million -- \$12.6 million in fees. 19 So Paul Hastings has been incurring about \$6.3 million every 20 four months, right?

I'm not sure you can do it like that, because there are 22 peaks and valleys.

23 precisely. I can't tell you precisely how much would be 24 owed -- incurred during that time.

25 trial, that's a lot more.

Ho Wan Kwok - June 13, 2023 29 the case. Q All right. So let's just assume that this appeal takes six months for purposes of my question. Okay? A So this is the appeal before the district court or the Second Circuit? Q Correct. So it's the -- what I'm asking you now about is the appeal of the order granting summary judgment on the second counterclaim -- A Uh-huh. Q -- which found that HK is the debtor's alter ego. That's what I'm asking you about. Okay? That appeal. A Correct. Yeah. Q So if that appeal, which has already been filed, takes six months, presumably it's done in December of 2023. Okay? You agree with me from June to December is six months? A Yeah. I agree with that. Yes. Q Okay. Thank you. So if you win that appeal, there's \$33 million, right? A Well, you're assuming that you're not going to appeal to the Second Circuit? Q Even if we do, if you win that appeal, there's \$33 million, correct? A I'm not sure that's correct. Meaning if you appeal to the Second Circuit, that could be another year. And then God knows -- another year plus. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 29 of Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 30 of

So do you believe -- and we have \$36 million in total, 2 33- plus the 3- you're holding. Okay?

3 even if we appealed, we being HK, so HKI appeals, it loses 4 at the district court, it appeals to the Second Circuit, the 5 appeals take 18 months -- you currently have \$12.6 million 6 in fees. Okay?

7 months Paul Hastings will incur another \$25 million in fees?

No. But I don't agree with your premise that it's 9 going to be that short.

10 cases that took a year-and-a-half to have a decision.

Okay. So you do agree with me that there is a pot of 12 money that Paul Hastings could look to, to get its fees at 13 some point in time, if it is successful on appeal, correct?

Again, it depends on the length of the appeal process.

Well, it doesn't depend on the length of the appeal 16 process. It just depends on you, the trustee, being 17 successful in the appeal, correct?

No, no.

I'm not asking you about the timing, Trustee Despins. 20 I'm asking you -- there's \$36 million that could be used to 21 pay professional fees, assuming you win on appeal, right?

Yes. But that doesn't mean I don't have the exposure 23 in the meantime, because the appeal process could last 24 years.

So let's talk about the other -- you mentioned hard

1 assets. So we have the Lady May, the Lady May II, correct? 2 And you're in the process of seeking bankruptcy court 3 approval to sell those assets, right?

Correct.

And you have The Sherry-Netherland apartment.

6 you seeking a buyer for that at this point in time?

Yes, we are.

And do you have an estimate as to how much you think 9 you might be able to get for that?

That's unclear.

11 issue, meaning whether we prevail on that issue, it would be 12 a major differential in terms of recovery for that asset.

Okay. So the Lady May, the -- I believe the offer in 14 the motion to -- per the sale was \$24 million.

15 sound right?

That's correct.

Okay. And so do you have a ballpark as to what you 18 think you might be able to get for the apartment?

As I said, it depends on the insurance coverage, 20 whether you sell it as is.

21 coverage, or you can sell it to someone saying there is 22 insurance to rebuild it to the way it was or to the standard 23 that it was. The price is -- the differential is massive.

Okay. So would it ever be zero, in your mind?

That's a complex question, because -- no, you would

1 never sell it for zero.

2 than zero. That depends on insurance coverage.

What are the other hard assets that you're aware of?

Well, did we mention the Greenwich house?

Not yet.

Okay. So there would be that.

7 claims against the daughter -- the debtor's daughter for the 8 airplane proceeds which are north of \$10 million.

Okay. And the -- do you have an idea as to how much 10 you believe the Greenwich house is worth? 11 MR. BASSETT:

12 only because to the extent the trustee is going to be 13 selling these assets, I don't know in a non-confidential 14 setting if we want the trustee telling the world what he 15 thinks they're worth. 16 THE COURT:

17 couldn't -- could barely hear you. 18 MR. BASSETT: I'm sorry. 19 THE COURT:

20 hear you.

21 MR. BASSETT: I'm sorry. 22 THE COURT:

23 you, number one. Number two, I'm not sure how this is -- I 24 think this is beyond the scope of direct at this point. 25 We're not -- we didn't have a direct examination about what

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1 the other assets would be worth.

2 about what would the harm be that would -- what harm would 3 be suffered by the trustee and the estate if a stay is 4 issued. So I think you got to wrap this up, Attorney 5 Moriarty. 6 MR. MORIARTY: So, Your Honor, I agree with you. 7 That was the line of questioning.

8 elicit from the witness is there are a number of additional 9 assets that he's identified that have value.

10 THE COURT: But that's not what he talked about. 11 He talked about on direct examination the harm that would be 12 suffered was that he -- that his firm would not be paid for 13 the services that they had rendered.

14 testified about.

15 retain associates, because his firm is a for-profit-making 16 business, like everyone's firm in this courtroom is.

17 that he can't continue to be in control of the associates in 18 a case where attorneys are not getting paid.

19 associates know every aspect of the case.

20 does not take on cases on a contingency basis. 21 And when Attorney Bassett asked him if there was 22 anything else that he would do with the money other than pay 23 the administrative expenses of the estate and possibly 24 retain a financial expert to trace the funds, then that -- 25 Trustee Despins talked about that there were other assets --

1 he thinks there's other assets out there and what would he 2 do with the funds if he had them after the payment of 3 administrative expenses. And he said he would invest them. 4 And he would invest them in treasury bills. 5 Because as of right now, they incur 5 percent interest.

6 the -- and the funds in the escrow account right now are 7 incurring -- are about .5 (sic) percent interest. 8 And that's what he talked about.

9 going to other jurisdictions, maybe getting other assets. 10 He didn't talk about the value of any assets.

11 talk about what it is that he thinks that the -- that those 12 assets could be sold for.

13 with regard to the investigation of the estate and how he 14 needs funds to do that. 15 So I do think you're -- I'll give you one or two 16 more questions, but then I think you're getting beyond the 17 scope of direct examination. 18 MR. MORIARTY: All right.

19 heard Attorney Despins' testimony.

20 good summary of what he testified to.

21 testimony was we need this money, because it's all we have. 22 And my questions go to the fact that there are other 23 potential assets. He's in the process of selling those. 24 They're going to create additional cash.

25 only pot of money. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 34 of

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Ho Wan Kwok - June 13, 2023 35 THE COURT: How is that relevant to your stay pending appeal? The questions were all about what's the harm. He told you what his harm is. You may disagree with his harm. But that -- how is it relevant to your getting a stay pending appeal? MR. MORIARTY: If there's other assets that can be used, Your Honor, then there's no harm. His harm is I don't have the ability to pay -- THE COURT: Well, you -- MR. MORIARTY: -- which -- THE COURT: The other assets that you're talking about, including the Lady May, you've already -- that's on appeal too, isn't it? MR. MORIARTY: It is on appeal. THE COURT: Yeah. So then your argument doesn't really make sense, because then you're going to make the same argument when you come to the Lady May. MR. MORIARTY: Well, Your Honor, I don't know that I could make the same argument continuously, because at some point in time it becomes self-defeating. But for now, it's not. But I will move on. Okay. BY MR. MORIARTY: Q So, Attorney Despins, the professionals that you haven't hired yet, those would be, for example, accountants, right?

1 A Yeah. AlixPartners is something like that. 2 Q Okay. So has any professional that you have inquired 3 about to engage for the estate refused an engagement because 4 there's no cash immediately available to pay them? 5 A Yes. 6 Q Okay. Who is that? 7 A AlixPartners. 8 Q Okay. Anybody else? 9 A No. I have not had the discussion with anybody else. 10 Q So was Alix -- what were you -- well, withdraw that. 11 Is AlixPartners the only professional firm that you've 12 spoken to about engagement for asset tracing? 13 A To date, yes. 14 Q Okay. So no other firm has -- no other firm related to 15 asset tracing or accounting-type work has refused to perform 16 services because there's no cash immediately available in 17 the estate? 18 A Well, I have not talked to any other firms, so -- 19 Q Okay. And you testified that information gets stale. 20 Do you recall that testimony? 21 A Correct. 22 Q Okay. But you've only spoken to one firm about taking 23 on the type of engagement where they would be tracing funds. 24 Is that correct? 25 A Yes.

Okay. And when you said the information gets stale, 2 you were referring to the fact that you need additional 3 professionals in order to avoid having that information get 4 stale, correct? 5 A I was referring to I need money to hire

Okay. 8 A -- to do that.

Okay. Mr. Linsey is your Connecticut counsel in this 10 case?

Yes, he is.

Okay. And has his firm refused to perform any tasks 13 that you've asked them to perform because they haven't been 14 paid yet?

No.

Okay. Have you asked Mr. Linsey's firm to perform any 17 additional services for the estate because your firm is 18 apparently making a decision that associates should be doing 19 other work for paying clients? 20 A No, I have not had the discussion with Mr. Linsey about 21 that. 22 Q And the associates at Paul Hastings that have been 23 working on this case, the junior mid-level associates who 24 may be pulled off of it, does Paul Hastings, the firm, 25 understand that you have obtained summary judgment on the

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1 Lady May account and also on the escrow account and that 2 between the two of those it's -- if you're successful in 3 selling the Lady May and you're successful in getting these 4 funds, \$60 million to the estate?

Well, they are aware of the progress of the case.

Okay. And they're aware that there's potentially \$60 7 million that could be coming into the estate at some point 8 in time this year?

You mean if you're not getting a stay pending appeal 10 or -- I'm not sure I -- meaning -- the fact that it comes 11 into the estate doesn't help us if we can't get paid. 12 That's the issue.

All right. So you haven't -- have you had discussions 14 with anybody at Paul Hastings, a decision maker, the 15 chairman of the firm where you said I understand why you 16 want to move my associates off of this case --

By the way, I didn't say he -- let's be careful.

18 didn't say that he said that he was moving associates.

19 said what's going to happen if we don't get paid is

Okay. And when is that going to happen?

Well, it's going to happen -- you know, the target was 23 to get paid by the end of June.

24 don't know what's -- you know, what's going to happen.

25 I know for a fact that -- because I'm in management of my

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1 department that we -- I cannot argue with other people that 2 need associates that they should not get them when I have a 3 case on which they are where we're not getting paid.

4 losing argument for me to make that point.

Okay. But sitting here right now, you cannot put a 6 date as to when or even if these associates will be moved if 7 Paul Hastings doesn't get paid by the end of June, correct?

It's a matter of weeks. 9 MR. MORIARTY: Okay. I have nothing further. 10 THE COURT: Thank you. 11 Any redirect? 12 MR. BASSETT: No, Your Honor. 13 THE COURT: Okay. Thank you, Trustee Despins. 14 You can step down. 15 Any further evidence, Mr. Bassett? 16 MR. BASSETT: No, Your Honor. Thank you. 17 THE COURT: Okay. Thank you.

18 Mr. Moriarty is going to argue the motion first, and then 19 you will respond. 20 MR. BASSETT: Yes. 21 THE COURT: Okay. Thank you. 22 Go ahead, Attorney Moriarty. 23 MR. MORIARTY: Thank you, Your Honor.

24 Honor is aware, this is a motion for stay filed by HK 25 International Funds Investments (USA) Limited, LLC and

1 Ms. Guo to stay enforcement of the judgment that the Court 2 entered on the second count of the trustee's counterclaims. 3 THE COURT: May I just stop you for one second? 4 And I don't mean to interrupt.

5 appearance, you only gave your appearance for HK 6 International.

7 connection with this motion?

8 the record. 9 MR. MORIARTY: Yes, Your Honor.

10 do that, that is obviously my fault -- 11 THE COURT: That's fine. 12 MR. MORIARTY: -- and I apologize for that. 13 THE COURT: And I could have misheard you.

14 just want to be clear for the record. Okay? 15 MR. MORIARTY: I appreciate that. 16 THE COURT: Thank you. 17 MR. MORIARTY: Thank you.

18 clear for the record, I announce my appearance in two 19 adversary proceedings.

20 defendant in the U.S. Bank adversary proceeding. 21 THE COURT: Okay. All right. Thank you. 22 MR. MORIARTY: Yes.

23 aware, entered a judgment on the second counterclaim finding 24 that HK USA is the alter ego of the debtor, and the trustee 25 is entitled to the property of HK USA.

1 clients are seeking is a stay pending appeal.

2 has already been filed.

3 the record, that's not the proper term, but as well as their 4 issues on appeal. 5 I believe the trustee's filing is due in about ten 6 days or so, give or take.

7 within 30 days from that date.

8 be fully briefed sometime -- assuming no extensions, 9 sometime in mid to late August. 10 So as Your Honor is aware from having heard in 11 this case and multiple other cases motions for stay pending 12 appeal, there are four factors that courts look to in the 13 Second Circuit in determining whether a stay should be 14 granted pending appeal.

15 or possibility of success on the merits or serious legal 16 questions going to the merits.

17 case, the crux of the decision is the debtor is the owner of 18 the Lady May and the Lady May II. And I understand.

19 the decision again this morning.

20 there. But everything flows from the finding on the first 21 counterclaim that the debtor is the owner of the Lady May 22 and the Lady May II.

23 other factors would be indicia of alter ego as it relates to 24 the debtor. They might be indicia of alter ego, but the 25 debtor would have no connection to HK USA. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 42 of

Ho Wan Kwok - June 13, 2023 42 So if we are successful, and by we I mean my clients, in convincing the district court that res judicata should not have applied, because that was the sole purpose -- or the sole basis for granting summary judgment on Count 1, res judicata as it related to Justice Ostrager's decision in New York, if res judicata was not applicable, then summary judgment should not have entered on Count 2, because there would be, at least at a minimum, issues of material fact. The second factor is irreparable injury, and it's the balances of the hardship tipping in favor of the movement or injury to the movement if the stay is denied. So in this case, we have, as you heard from Trustee Despins' testimony, \$36 million. 33- in escrow. He's holding 3-. And we know from Trustee Despins' testimony that as soon as the trustee has access to that money, it is going to be spent, \$12.6 million, assuming the Court grants the fee application in total. Maybe it will be less. But \$12.6 million is what Paul Hastings has asked for. I believe Mr. Linsey's firm has asked for \$550,000. So that's already north of 13 million. There's other professionals that, to the extent they haven't, will be submitting fee applications. So immediately upon that money being released to the trustee, without a stay, \$13 million, plus or minus, is

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1 going to be spent.

2 money was never property of the estate, and it should not 3 have been spent to pay administrative fees.

4 then in the position of having to come back and seek 5 disgorgement. 6 Now, maybe Trustee Despins' law firm immediately 7 pays it back. Maybe they don't.

8 does. Maybe they don't.

9 be additional litigation, additional motion practice.

10 HK USA is going to be in the position of having successfully 11 appealed a judgment and now being able to recover, at least 12 initially, maybe two-thirds of that money, maybe a little 13 bit less. 14 So there will be harm to HK.

it can be disgorged, then maybe that harm's not irreparable. But if we start to deal with creditor claims, if we have other professionals who are coming in and they're doing one-off projects -- Trustee Despins has retained counsel down in the BVI. So they file a fee application. They get paid. Does HK then have to go to the BVI and chase them?

So there's a lot of factors that go into this. And there will be harm, irreparable harm, to HK, because it is going to have to chase its own money if it's successful on appeal. If it's not successful on appeal, then no harm, no foul. But that brings me to --

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Ho Wan Kwok - June 13, 2023 44 THE COURT: Do you have a case that says that irreparable harm exists when the remedy is money, when there's -- MR. MORIARTY: I do not, Your Honor. THE COURT: -- when there's a remedy at law? MR. MORIARTY: No, because that is not the law. And I agree with Your Honor that that's not the law, that if you can -- that if money damages can make you whole, then you haven't be -- been irreparably harmed. I will note for the Court that the trustee cited in his opposition yesterday, and this is at page 12, In Re Tribune Company, which is 477 B.R. 465. It's a Bankruptcy District of Delaware 2012. THE COURT: Yep. MR. MORIARTY: And in that case, the Court discusses the fact that other courts have held, and it wasn't the holding in this case, because it wasn't necessarily at issue, but other courts have held that if a stay is not granted, and as a result additional litigation is likely to occur if the appellant is successful, that could be irreparable harm. So in this case, if HK is successful and HK has to come back, and it has to file lawsuits, it has to engage in motion practice to get its money back which the estate should have never had in the first place, that would be

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Ho Wan Kwok - June 13, 2023 45 irreparable harm. The third point is substantial injury to the party opposing a stay. We just heard Attorney Despins' testimony as far as retention of other professionals. There was a lot of argument in the opposition brief that Attorney Despins was unable to hire other professionals, because there's no money in the estate. He told us that there was one firm that refused an engagement. And he hasn't sought to retain anybody else. And to the extent that evidence is really getting stale and these professionals are that important, he should be talking to others. Nobody else has said, no, there's \$33 million in an escrow account that the Court has held is property of the estate. There's the Lady May that the Court has held is property of the estate. There's tens of millions of dollars potentially coming into this estate. I find it hard to believe that the trustee cannot find a professional firm to work with him in this bankruptcy case. And we know from his testimony that he's only spoken to one. As far as the associates at Paul Hastings, you

know, maybe they're going to be taken off the case. Maybe they're not. We don't have a date. We don't know whether there's other associates that can come in and work. You know, I don't doubt Attorney Despins'

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1 testimony that Paul Hastings would like to be able to 2 recover the money that its associates are billing, because 3 it's paying its associates.

4 drop-dead date.

5 testimony I don't know.

6 reads the transcript, you will see that. 7 Mr. Linsey's firm has not refused to do any work. 8 Trustee Despins has not asked Attorney Linsey's firm to take 9 on any additional responsibilities, even though we know from 10 the fee application that Attorney Linsey's fees firms (sic) 11 are 20 times less than the trustee's fees. 12 The trustee testified on direct that he's 13 optimistic about recovery of other assets.

14 could sell that to professionals that he's looking to hire. 15 As far as the amount of interest on the money that 16 the trustee could make if it was invested in T-Bills as 17 opposed to with U.S. Bank, I would have to ask my client, 18 but I would venture to guess that my clients would not be 19 opposed to that money being put into a product that was 20 riskless. Because we're not defaulting on the debt anymore 21 and was earning 5 percent interest. 22 So we could address that issue by agreement.

23 confident of that.

24 THE COURT:

25 that.

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Ho Wan Kwok - June 13, 2023 47 MR. MORIARTY: Sure. THE COURT: So you're saying your clients would agree for the money to come out of escrow and be put in some form of an investment that would earn 5 percent? MR. MORIARTY: I'm saying that my -- I'm saying that I would recommend to my clients -- THE COURT: Okay. MR. MORIARTY: -- that subject to -- THE COURT: Have you done that yet? MR. MORIARTY: I haven't, because I haven't had a chance to have the discussion. I'm not going to tell Your Honor what the discussions were, but there were discussions between -- THE COURT: I'm not asking for you to tell me what the -- MR. MORIARTY: -- my office and the trustee this morning. THE COURT: -- the discussions were. MR. MORIARTY: So -- THE COURT: I'm asking, have you asked your client. You just made a representation on the record during your oral argument that you think you could work out an arrangement, that's what you just said, that the \$36 million or 33 -- I don't know if you put the 3 in, whatever -- your clients would agree, that's what you just said, to put that

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Ho Wan Kwok - June 13, 2023 48 into some form of a product that would earn 5 percent. Which you've already said you don't want the money out of escrow. Now you're saying you will do that with an agreement. So I need to understand. What's your position? MR. MORIARTY: Okay. And I will explain it, Your Honor. And if I haven't articulated it well, I apologize to the Court. THE COURT: It's okay. MR. MORIARTY: I believe I started by saying, and if I didn't, I should have said, that I haven't had this discussion with my client yet, but I would recommend to my client that subject to the terms of the escrow agreement that the money could be put into a higher-interest-rate-earning product that is safe, which is what the -- THE COURT: Well, I don't understand that, subject to the terms of the escrow agreement. It's either going to be in escrow, or it's not. MR. MORIARTY: But it could be in escrow earning a higher rate of return, or it could be with the Court. It could be with the trustee. But it could still be subject to the terms of the escrow agreement. In other words, the money is sitting somewhere other than with the escrow agent, but the terms of the escrow agreement as to when and -- when and if it comes out

Ho Wan Kwok - June 13, 2023 49 would still be applicable. THE COURT: Well, that doesn't -- MR. MORIARTY: That's what I'm saying. THE COURT: I don't think that works. So you can have that conversation, but I don't see how that could possibly work. MR. MORIARTY: Okay. So the public interest is the last factor. And in this particular case, what we're talking about is do we have a stay pending appeal. The appeal is done in hopefully six months, give or take. We have an order. And the money gets disbursed, either back to HK or to the trustee. Or do we do this in a piecemeal fashion where the trustee gets access to the funds, the trustee then spends them down. HK is successful on appeal, and HK then has to come back to the Court, seek disgorgement of fees that were paid to the professionals of the trustee. So the public interest here is in finality and efficiency. Enter a stay. Let's let the appeal play out. If the trustee is successful, the trustee gets paid. If the trustee is not successful, that was never money of the estate in the first instance to pay the trustee. If the Court has any questions, I'm happy to answer them. THE COURT: I don't have any at the moment. Thank you. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 49 of

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1 MR. MORIARTY: Thank you. 2 THE COURT: Attorney Bassett? 3 MR. BASSETT: Yes, Your Honor.

4 for the record, Nick Bassett from Paul Hastings on behalf of 5 the Chapter 11 Trustee. 6 Your Honor, I think it is critically important 7 that we reorient and start from the baseline proposition 8 that a stay pending appeal from this Court is extraordinary 9 relief for which the appellant seeking the stay bears a 10 heavy burden. I think the case law is clear in that regard. 11 We cite it in our objection. 12 What this means is that the general rule for 13 purposes of establishing finality and certainty in 14 bankruptcy cases is that an order of the Bankruptcy Court is 15 immediately enforceable, and the Court should only deviate 16 from that rule in extraordinary circumstances. 17 Now, I would submit that in this case the stay 18 that the appellants are seeking of the May 18th summary 19 judgment order is especially extraordinary given all the 20 facts and circumstances of this bankruptcy.

21 this a lot when we're before the Court, and we talk about 22 the history of these cases, where we started, how we got 23 here. 24 But, Your Honor, it really, in my view, cannot be 25 emphasized enough that this is a case involving a debtor who Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 51 of

1 filed Chapter 11 before this Court voluntarily, I think a 2 year and a half ago or so now, claiming, as we've been able 3 to demonstrate falsely, that he has zero dollars to his name 4 and essentially no assets or money to put on his schedules. 5 Instead, what you have is the debtor, with the assistance of 6 his associates and his family members such as the HK 7 parties, who have been withholding property that is 8 rightfully property of the estate and always should have 9 been from the moment this case was commenced. 10 So what does that mean?

the HK parties and the debtor on whose behest they're acting have effectively had a stay pending appeal for the duration of this case, holding its professionals, Paul Hastings and others, hostage, because there are allegedly no assets at all in this estate. Now, despite all the odds and despite having to fight against obstruction in the investigation that we've experienced over and over again, the trustee has made progress. And that progress became tangible when the Court entered its orders on summary judgment in the HK USA adversary proceeding as to the Lady May and as to the escrow funds.

So to allow at this stage, a year and a half into this case, after this case has never had a -- virtually a dollar of funding, for the HK parties to say, you know what, we want a further stay pending appeal, we want to further Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 52 of

1 deprive this estate from having any funding whatsoever to do 2 the types of things that Mr. Despins testified about, I 3 think, calls for the Court to apply extraordinarily high 4 scrutiny to the request that's being sought and to make 5 absolutely sure that before any stay is granted the 6 appellants have satisfied every element of their burden.

And I want to be clear as to the factors that Mr. Moriarty went through. The appellants bear the burden on each one of those factors. I think we often talk about it and kind of reorient ourselves where it may seem like the burden all of a sudden is on the trustee. Yes, we chose to put the trustee on the witness stand to talk about the harm to the estate of a stay pending appeal, because we think that's important and because we think it's important for the Court to hear from the trustee.

But make no mistake. It's still the appellant's burden even as to that element to prove that this estate and the other non-appellant parties will not be harmed by a stay pending appeal. And I submit they have not made their -- they have not met their burden on that factor, and they have not met their burden on any of the other factors.

Now, to start with the likelihood of success on the merits prong. I won't belabor this point. I think the Court obviously knows its decision well. I can't remember exactly when we had the hearing on the second motion for

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1 summary judgment and how long it took for the Court to issue 2 its decision, but it was certainly several weeks.

3 result on May 18th was, what I would submit, a very 4 thoroughly reasoned decision supported by the law and an 5 abundant factual record based on undisputed facts, many of 6 which have been admitted by the HK parties. 7 And Mr. Moriarty in his brief remarks on 8 likelihood of success focused on this argument, which is 9 also the focus of their papers, that, you know, this 10 decision is likely to be overturned on appeal, because it 11 all rests on collateral estoppel.

12 to that. 13 First, that's a mischaracterization of Your 14 Honor's decision. I went back and pulled it as Mr. Moriarty 15 was talking. And on page 21 of the May 18th decision, the 16 Court starts a lengthy, detailed paragraph with the line: 17 "Beyond the application of collateral estoppel, the record 18 of this case supports the conclusion that the individual 19 debtor beneficially owns and controls the Lady May and the

And goes on and talks about testimony that 21 the daughter has given, other admitted facts about HK USA 22 and its relationship to the debtor. 23 There is a robust factual record beyond collateral 24 estoppel. But even as to the issue of collateral estoppel, 25 it was more than appropriate for the Court to rely on that

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1 decision, because it's a critically important decision in 2 that it established that the Lady May is, in fact, owned and 3 controlled by the debtor, which of course is central to the 4 question of the alter ego relationship when HK USA 5 admittedly does nothing else other than own the Lady May. 6 And that decision itself, which is not subject, I 7 would note, to a parallel motion for stay pending appeal, 8 was also itself thoroughly reasoned based on applicable law 9 on collateral estoppel, based on the fact that Mei Guo 10 participated extensively in the proceedings before Justice 11 Ostrager. 12 So I think for all of those reasons, because both 13 decisions were thoroughly reasoned, because they're both 14 consistent with the law, because the factual record is 15 undisputed about the shell company nature of HK USA, the 16 inextricable ties between HK USA and everything it has ever 17 done, which is own the yachts, and Mr. Kwok, I think it is 18 exceedingly unlikely for the Court to be reversed on appeal. 19 And, again, the burden rests on the appellants to prove 20 otherwise. 21 As to the harm factor, Your Honor, and I'll start 22 with the harm to the HK parties, first of all, they need to 23 demonstrate to the Court, and the case law is clear on this 24 if you look at the cases we cite on page 10 of our

Fiore Reporting and Transcription Service, Inc.

objection, paragraph 21, they need to show that the harm Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 55 of

1 that they would suffer absent a stay is irreparable and 2 actual and imminent, not merely speculative.

3 mere prospect, as the case law says, of monetary loss is not 4 sufficient for a stay pending appeal.

5 important to put their arguments in the context of the 6 standard that applies and the burden that they need to meet. 7 And before I get to why I think their arguments 8 about not being able to recover the \$33 million is 9 speculative, I want to point something out at the outset 10 which we mentioned in our papers, because I think it's 11 important. 12 And this is that the HK parties -- and I'll direct 13 the Court to a letter that Attorney Vartan, other counsel 14 for the HK parties, had sent to the trustee and which has 15 been previously submitted to the Court at Docket 1613.

16 believe it's Exhibit A to that filing. 17 The HK parties have taken the position, as made 18 clear in that letter, that the escrow funds are not an asset 19 of HK USA but a liability.

20 blank. The escrow funds are a liability of HK USA, not an 21 asset. 22 And, of course, the background for that is that 23 the HK parties had taken the position that they obtained a 24 loan in the amount of the escrow funds from Uncle William 25 and the Himalaya entity that he allegedly controls.

1 Your Honor, if it's really a liability, the party who's 2 going to be harmed by any dissipation of the \$33 million 3 that may occur, if anyone, is Uncle William.

4 USA. 5 As to the arguments that the HK parties will be 6 harmed by the absence of a stay pending appeal, because the 7 \$33 million and the repairs are maybe spent on compensating 8 counsel and otherwise, again, that is speculative at best. 9 And the requirement is not merely that they allege the 10 possibility of harm.

11 imminent and not speculative. 12 The reason it's speculative is because you heard 13 the trustee testify about all the other assets that he is 14 presently investigating. 15 In fact, Attorney Moriarty was trying to emphasize 16 that for purposes of making another point in his 17 cross-examination of Mr. Despins.

18 as the trustee, you know, hopes will be the case, he in the 19 future is able to bring additional assets into these -- this 20 estate, and the appeal finally runs its course, however long 21 it might take -- it could be six months.

22 months. It could be a very long time.

23 we don't know if there won't be assets in the estate to 24 repay the \$33 million if that's the decision that the 25 appellate court reaches.

1 the contrary is entirely speculative and not sufficient to 2 satisfy their burden. 3 The next factor, Your Honor, of course is the harm 4 and the injury to other parties in the event that the stay 5 is granted. On that, I will refer the Court back to the 6 testimony of the trustee.

7 said. But I think the testimony is un-rebutted.

8 frankly, it's pretty obvious that any law firm that has been 9 doing this work for as long as Paul Hastings has without 10 being paid, there are eventually going to be issues with 11 proceeding down that path indefinitely. 12 And the trustee made clear he's concerned about 13 losing talented individuals.

14 if an associate is pulled off onto another case, you know, 15 can we replace that individual with something else.

16 people on the team whose institutional knowledge cannot be 17 replaced, people who are absolutely indispensable.

18 critical that we continue to have them as part of the team. 19 And that's at serious jeopardy the longer we go, operating 20 in this world where this estate has no money with which to 21 pay any fees of counsel.

professionals. That's real. I think this -- it should go without saying that in a case like this where we're investigating the type of conduct that the debtor has been Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 58 of

Ho Wan Kwok - June 13, 2023 58 accused of engaging in and the types of things that we've already even uncovered and proven to the Court, there's clearly a complex web of shell companies and associates and bank accounts. It's also clear from the criminal indictment. Those are all the kinds of things that we need additional advisors to help us do, that lawyers cannot do alone.

And the trustee said, which should go without saying, you can't expect to hire those advisors without paying them money. And it's not just that they, you know, would be -- are being asked to take a flyer and not be paid right away. They'd also have to sit behind other professionals in the case. So there are real reasons why it is simply not realistic to believe that an AlixPartners or somebody else would do this without getting paid. And that's what the trustee has been told.

I did want to cite to just -- on this -- on the harm to the estate point, I wanted to cite to a couple of cases that I think are helpful. One is the In Re Taub case. It's a Bankruptcy Eastern District of New York case from October 2010. The citation to it is 2010WL3911360.

The reason I'm citing to that case is because it's a case where in the context of analyzing the effect of the stay being sought in that case of retention applications to employ professionals, the court acknowledged that the estate

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1 would suffer harm by not having the access that it would 2 otherwise have to professionals to run the operations of the 3 estate and do the other things that those professionals 4 would be doing. I think that is, while a different context, 5 a concept that is instructive here. 6 MR. MORIARTY:

7 interrupting Attorney Bassett.

8 inquire if those cases are cited in the trustee's papers? 9 THE COURT:

10 could be wrong. 11 MR. BASSETT:

12 that case was. But I think it was certainly cited by cases 13 that we had -- that we had cited.

15 THE COURT:

16 counsel. 17 MR. BASSETT: Sure. 18 THE COURT: Okay?

19 MR. BASSETT: I'll provide it to counsel. 20 THE COURT:

21 has to have it. 22 MR. BASSETT: Sure.

23 Honor, we're -- in preparing for the argument today, after 24 having the benefit of the reply brief and the briefing being 25 concluded, we're doing some additional research.

1 extent we found that case, I wanted to make sure to bring it 2 to the Court's attention.

3 Mr. Moriarty. 4 The other -- and this is a general principle that 5 I think is found in a lot of cases, but courts have also 6 held that there is harm to the non-appealing parties, in 7 particular a bankruptcy estate, where as a result of the 8 requested stay creditors will not be paid.

9 concept that is very clearly articulated in the cases that 10 we cited in our papers, including, I believe, Tribune, 11 Adelphia, and others. 12 But there's another example of a case, which I'll 13 give to Mr. Moriarty, that talks about -- this is a 2015 14 decision from the Eastern District of New York, 29 Brooklyn 15 LLC vs. Chesley, 2015WL9255549.

16 where the argument was made that there would not be 17 substantial harm to the estate, because there were funds 18 being held in escrow.

19 that argument disregards the well-settled precedent that 20 delay cause to creditors in receiving their payments is a 21 significant harm warranting the denial of a stay.

22 here, Paul Hastings and the other professionals are 23 administrative creditors of this estate. 24 Your Honor, the last factor in the analysis is the 25 public interest. I'd go back to the comments that I made at Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 61 of

1 the outset. I think this case is extraordinary in a lot of 2 ways. And it, to me, is, I think, clear that the public 3 interest does not support a further maintenance of the 4 status quo in this case, which is the debtor being allowed 5 and his associates in the HK parties being allowed to 6 withhold from the estate, from the trustee, from the 7 professionals of the estate that should be compensated by 8 funds, to withhold them from the estate indefinitely when 9 these are assets and property that really should have been 10 listed on the debtor's schedules. 11 And, you know, that's particularly, I think, 12 another -- another reason why this relief is not in the

public interest is because the HK parties who, as the Court has found in HK USA is the alter ego of the debtor, and then, of course, his daughter, they are, in effect, being allowed to do the bidding of the debtor, which is to prevent the trustee from getting the funding that he needs to continue his investigation into the debtor's affairs.

So when you have a relationship like we have here where the HK USA parties are so inextricably linked to the debtor and have the relationship that they have, it is entirely inequitable to allow them to prevent the trustee from continuing to move forward to investigate the debtor's assets and affairs and find the additional property that he's seeking to locate.

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The last point I would make, Your Honor, is the point about the bond which Mr. Moriarty did not address but which we addressed in our papers.

this a little bit at the status conference that I believe occurred last week. But under Rule 8007 and the accompanying case law in the Second Circuit, it is very clear that the ordinary requirement for any stay pending appeal is that a bond be posted. And to the extent that there's going to be any deviation from that requirement, it is the burden of the appellant to argue why a bond is not appropriate. We cite case law in our papers, including the Tribune case and other cases, standing very clearly for the proposition that a bond is appropriate to compensate the estate for the lost opportunity cost involved in not having immediate access to the funds or the immediate ability to execute on whatever judgment has been rendered. Here, the trustee testified about what he would be able to do in terms of investing money from the escrow account if he had access to it to earn a much greater rate of return. He also talked about using the funds to retain professionals who could conduct the type of investigation that's necessary to find additional material assets to bring into the estate.

on his experience to date, which involves already

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1 identifying and pursuing tens of millions of dollars worth 2 of hard assets that he thinks there are substantial other 3 assets that could be located and could be brought in. 4 The issue, however, is that that information that 5 could lead to the recovery of those assets, in the trustee's 6 view, will or may very likely become stale, meaning that if 7 he waits and we're not able to conduct this type of 8 investigation, which we need the funding to conduct, until 9 after the appeal runs its course, all of those assets that 10 we may otherwise have been able to recover may be gone. 11 And we know that during this case, the debtor and 12 his close associates are, in fact, taking steps to continue 13 to make it more difficult for the trustee to recover assets 14 to which he is entitled, including Ms. Yvette Wang, as the 15 Court has been made aware, transferring her ownership in Ace 16 Decade to an individual in Switzerland after this Court 17 entered an order that that interest was property of the 18 estate. It's that type of thing that we are very fearful of 19 continuing the longer we wait to conduct this investigation. 20 And while there's no exact science behind putting 21 a figure on a bond, based on everything that we know to 22 date, based on the optimism that the trustee has in its 23 investigation, in our papers we very, very conservatively 24 set that bond at \$7 million.

25 discretion of the Court as to what level to set that.

1 again, we think that particular bond would be imminently 2 defensible and reasonable. 3 But, again, it's only necessary if the Court were 4 even to grant a stay.

5 articulated, I think the Court absolutely should not do 6 that, because the HK parties have not met their burden on 7 the four factors. 8 I think that's all I had, Your Honor, but 9 obviously I'm happy to answer any questions. 10 THE COURT: Okay. Thank you.

11 questions at this time. 12 MR. BASSETT: Thank you. 13 THE COURT: Thank you. 14 Attorney Moriarty, would you like to respond? 15 MR. MORIARTY: Yes, Your Honor, briefly. 16 Starting, Your Honor, on the issue of the bond, if the Court 17 was going to condition any stay on HK or Ms. Guo posting a 18 bond, the Court would be denying the stay, because HK does 19 not have any assets and could not post a bond.

20 Ms. Guo's assets have been enjoined, so she cannot post a 21 bond. So if the Court were to condition it on 7 million, 6 22 million with respect to HK USA \$47.00, the Court would be 23 effectively denying the stay. 24 With respect to the Paul Hastings lawyers and 25 those lawyers -- associates, mid-level associates leaving

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1 the team to go do work for other clients, Paul Hastings was 2 retained by the trustee.

3 retention. Paul Hastings understood when it accepted that 4 retention that there was no money in the estate. 5 Paul Hastings has a duty to represent its client. 6 If Paul Hastings no longer wants to do that, it can 7 withdraw. But Paul Hastings should not be threatening the 8 trustee with removing attorneys who have all of the 9 institutional knowledge from the case. 10 As far as who the loan is to, its harm to Uncle 11 Willy, first of all, I don't have the letter that Attorney 12 Bassett referred to.

13 the loan being a liability of HK, obviously a loan is a 14 liability. But on a balance sheet, you have to have a 15 corresponding entry.

16 liability. So there would have to be a corresponding entry. 17 But the fact is, is that if this is a legitimate 18 loan -- and until a trier of fact says it is not, it is -- 19 there is harm to HK USA that is irreparable by this money 20 being released and spent, because HK USA still has the 21 obligation to pay this loan. 22 And that is all I have, Your Honor.

23 any questions, I'm happy to answer them. 24 THE COURT: No, thank you, counsel. Thank you. 25 Attorney Bassett, any reply?

Ho Wan Kwok - June 13, 2023 66 MR. BASSETT: Very briefly, Your Honor. Just very briefly on the point that Attorney Moriarty raised about the HK USA loan. And I -- so, again, this letter was filed on the docket, as I understand it, and I gave the Court the reference earlier. THE COURT: Well, we can pull it up if you'd like to. MR. BASSETT: Sure. MR. MORIARTY: Your Honor, I'm not suggesting that Attorney Bassett was misrepresenting it. All I said was I didn't have it. THE COURT: I understand. But if you'd like to see it, we can see it. MR. MORIARTY: If he believes it's necessary. It's his argument. MR. BASSETT: I don't believe it's necessary to pull it up, Your Honor. I just wanted to -- THE COURT: Okay. MR. BASSETT: I just wanted to quote directly from it, which is the statement: "HK USA maintains that the escrowed funds are not an asset of the company but a liability which is to be repaid." That was the position that they took previously, because it suited their interests at the time. That's been their argument. And, again, that argument is based on the idea that these funds were loaned Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 66 of

1 to HK USA by Uncle William. 2 The Court has now determined that the estate owns 3 HK USA, that HK USA is rather the alter ego of the debtor 4 and, therefore, is property.

5 liabilities are those of the estate.

6 William, if he so chooses, would assert a claim against the 7 estate for whatever he thinks he is owed. 8 But what that does not establish in any way is how 9 the HK parties themselves would be harmed by the trustee 10 being allowed to expend the escrow funds and by there not 11 being a stay. Mr. Moriarty said that HK USA would remain on 12 the hook. Again, it's the estate who would be sued.

13 guess if that order is reversed, then he would say that HK 14 USA would. 15 But he also just said that HK USA has no money. 16 So it's not clear to me how there would be any harm suffered 17 by there being a claim against it. 18 So, Your Honor, I don't have any other remarks to 19 add other than to just close by reminding the Court there's 20 a four-factor test.

21 test to satisfy their burden.

22 one. We don't think this is a close call, and we think the 23 stay should be denied. Thank you. 24 THE COURT: Thank you. 25 All right.

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1 arguments of counsel.

2 especially the papers that were just filed.

3 both made some arguments that included cases that I -- at 4 least one case, Attorney Bassett, and possibly two that 5 you'd need to provide to opposing counsel.

6 that you've submitted, there's no -- no further evidence 7 will be taken by the Court in connection with the motion for 8 stay pending appeal.

I'd like to go back and review what occurred today and look again at the cases cited in the briefs. So the matter will be taken under advisement, and the Court will rule accordingly. So that addresses the matters on the calendar with regard to the motion for stay pending appeal, which is 227.

Now, the other matters that are on today's calendar relate to the pending motion for an order to show cause why the debtor, Mei Guo, and HK USA should not be held in contempt for failure to comply with the 2004 orders; and the motion of the debtor for a limited stay; and then, of course, the status conference on the adversary proceeding commenced by the escrow agent.

So how are we proceeding, Trustee Despins? MR. BASSETT: Your Honor, I think we would take the contempt motion next.

THE COURT: Okay. Well, we've had argument on

Ho Wan Kwok - June 13, 2023 69 both of these motions previously. Attorney Baldiga, you've argued your position before, correct? And wasn't -- MR. BALDIGA: Yes. THE COURT: Weren't we going to find out today what, if anything, you -- the two parties have discussed since our last hearing with regard to what could possibly be an agreed-upon order with regard to this issue? MR. BASSETT: Approach, Your Honor? May I approach? THE COURT: Yes, please. MR. BASSETT: So just by way of status update, I don't know that there is much else to report from the trustee's perspective other than I can report -- and my recollection is failing me. I'm not sure if this was filed on the docket or not. But we did receive from the debtor the response to the list of questions that was part of the order the Court issued. THE COURT: Okay. I recall that portion. MR. BASSETT: Right. And from the trustee's perspective, that was -- you know, what we received was consistent with the order. It was the debtor asserting his fifth amendment rights in response to those questions. THE COURT: To the specific questions? There were, I thought, maybe a hundred of those or -- MR. BASSETT: Maybe slightly less than that, Your Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 69 of

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Ho Wan Kwok - June 13, 2023 70 Honor. THE COURT: Okay. MR. BASSETT: But, yes. UNIDENTIFIED SPEAKER: 202. THE COURT: 202. MR. BASSETT: 202. Jeez. Okay. THE COURT: Okay. There you go. MR. BASSETT: I apologize. I stand corrected. But, yes, Your Honor. So we did receive that. Otherwise, I think from the trustee's perspective we were awaiting any additional -- THE COURT: All right. MR. BASSETT: -- ruling from the Court. THE COURT: So the issue is still what, if anything, you would like the Court to do -- well, you would like the Court to have the debtor be compelled to file something in the Southern District of New York criminal proceeding to allow the production that's made to the debtor in the criminal proceeding also be made to the trustee, correct? MR. BASSETT: That's correct, Your Honor. THE COURT: Okay. And, Attorney Baldiga, I think at the last hearing you said that you would agree with most of that but not quite all of that. That if I -- if the Court were to enter an order requiring you as counsel to the

1 debtor defendant to ask the Southern District of New York, 2 the United States Trustee's Office to produce that 3 information to the debtor that you would do that.

4 correct? 5 MR. BALDIGA:

6 request. Yes, Your Honor. 7 THE COURT: Okay.

8 place we are then with regard to this issue.

10 MR. BALDIGA: Yes. 11 THE COURT:

12 that any production made to the debtor shall also be made to 13 the trustee. And you, Attorney Baldiga, would agree to 14 filing a motion. Or, well, maybe you didn't agree to that. 15 Maybe you just said you would facilitate. 16 MR. BALDIGA: No.

17 say that if that is what the Court so orders, we would both

19 THE COURT: Okay. 20 MR. BALDIGA:

21 we do think the district court would need to weigh in on 22 that. 23 THE COURT: All right.

24 to hear from both of you today as to where things stood 25 given where we were at the last hearing.

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1 sounds -- I mean, more than sounds.

2 Attorney Bassett, that as far as the agreement that we -- 3 that you reached last hearing about the specific questions 4 and the invocation of the fifth amendment, you've taken -- 5 that's been done, and the trustee is satisfied with that, 6 correct? 7 MR. BASSETT: That's correct, Your Honor. 8 THE COURT: Okay.

9 to whether or not the trustee -- I would agree with the 10 trustee that the Government would produce to the debtor and 11 the debtor would then produce to the trustee versus Attorney 12 Baldiga's argument that there be a waiver of the fifth 13 amendment if the debtor produced directly to the trustee, 14 correct? That's still your position, correct? 15 MR. BALDIGA: Yes. 16 THE COURT: All right.

17 decide is that issue. 18 MR. BALDIGA: Yep. 19 THE COURT:

20 would enter an order that the production of whatever 21 information in discovery the United States Attorney has that 22 would be provided to the debtor would then require the 23 debtor to produce that to the trustee or whether the 24 debtor -- whether I would require the debtor to file some 25 kind of motion asking -- and I know -- understand your

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1 position, Attorney Bassett, that if I enter an order asking 2 or -- not asking, requiring the debtor to file a motion with 3 regard to this discovery issue, your position is, well, 4 they're just going to say I'm not going to do that. 5 MR. BASSETT: Right.

6 in getting the information through that process.

7 view, if the debtor has access to the information, because 8 it's been produced to him through the disclosure process by 9 the Government in the criminal case, by far the best way for 10 the trustee to get that information and the way, frankly, 11 that we believe we are entitled to receive the information 12 is simply by the debtor then producing the information to 13 the trustee. 14 And I won't belabor the points we had already

16 THE COURT: No. I understand. I understand. 17 MR. BASSETT: Yeah.

18 THE COURT:

19 that if he does that, that somehow that'll be a waiver of 20 his fifth amendment privilege. 21 MR. BALDIGA: We have other arguments.

22 Attorney Bassett and I were speaking before the hearing as 23 to whether today would end up being a re-argument of all the

25 MR. BASSETT: No.

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1 MR. BALDIGA:

2 THE COURT: No. I don't want to reargue it. 3 MR. BALDIGA: Okay.

4 THE COURT: I think I understand your positions. 5 MR. BASSETT: Yeah. 6 MR. BALDIGA: Yeah. 7 THE COURT: Right? 8 MR. BALDIGA: Yes. 9 THE COURT:

10 tell me? 11 MR. BALDIGA: Yeah.

12 we don't know what the Government would say to that.

13 think what the Government would say to the trustee's direct 14 request is functionally the same as to what the Government 15 would say as to our request.

16 stuff either way. It's just one way it does implicate fifth 17 amendment rights, and we would not be able to do that.

18 other way it doesn't.

19 THE COURT:

20 understand your argument. 21 MR. BALDIGA: Okay. 22 THE COURT:

23 problem, if the Court were to order -- there's -- obviously, 24 there's a few ways this could happen.

25 to order the debtor to file the motion and then, hopefully,

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1 there'd be a response to that one way or another, that if 2 there is a production, Attorney Baldiga, you -- I think one 3 of the things that trustee needs to know is whatever is 4 turned over to the trustee would be the same thing turned 5 over to the debtor.

6 to -- there -- you don't want to have a gap. 7 I mean, there is a situation if -- you -- you're 8 saying I don't want to turn over to the trustee whatever the 9 Government turns over to us, because it's going to be a 10 waiver of the privilege.

11 Government can turn it over to the trustee.

12 how does the trustee know that whatever the Government's 13 turning over to the trustee is everything the Government 14 turned over to you? 15 MR. BALDIGA:

16 that or not.

17 THE COURT:

18 right? 19 MR. BALDIGA:

20 conceivably. I didn't think that we would be involved in 21 the government's production. 22 THE COURT: No, no.

23 production. I'm saying in what you received and what the 24 trustee would receive, right?

25 is, the trustee wants it directly.

give it to him directly, because you're worried about waiving a fifth amendment privilege. MR. BALDIGA: And there are other issues as well. We cannot, for example -- some of the materials that the Government has we can't even see. THE COURT:

arguing about that.

MR. BALDIGA: Some the debtor cannot see. THE COURT: -- to have whatever you have. MR. BALDIGA:

THE COURT: Isn't that what you want? MR. BALDIGA:

MR. BASSETT:

MR. BALDIGA:

clear. There are some things that the Government will deliver to my firm that the debtor cannot see.

subpoena for those materials.

for anything that we're talking about.

issue if we don't do this cooperatively, I just don't see how a subpoena gets served.

with that down the road, because we have a long ways to go. That's why we are trying to suggest a consensual way through this. But the debtor will not see what the Government

1 tells us is a very substantial portion of what the 2 Government will produce to us by way of grand jury 3 materials. The debtor will never see it.

4 won't be a complete overlap.

5 close. 6 MR. BASSETT:

7 is suggesting, but I don't know why the debtor having access 8 to the documents or not impacts whether the trustee could 9 have access to the documents. 10 MR. BALDIGA:

11 is of the debtor. 12 MR. BASSETT:

13 documents, his agents have the documents.

15 MR. BALDIGA:

16 MR. BASSETT:

17 MR. BALDIGA: That's a whole different issue. 18 MR. BASSETT:

19 Your Honor. But what I do think is the -- what really kind 20 of highlights the issue is that it has never and continues 21 to not make any sense to the trustee that he has this 22 concern about the fifth amendment that applies if the debtor 23 physically gives us the documents or his counsel physically 24 gives us the documents, but that same concern is nonexistent 25 if they are just consenting sight unseen for the Government

1 to provide us the exact same documents.

2 THE COURT:

3 obviously. 4 MR. BALDIGA:

5 substance. 6 THE COURT: They're not going to consent, though. 7 I mean, that's clear. 8 MR. BASSETT: Well, no.

9 do consent to the Government giving us the documents, which

11 MR. BALDIGA:

12 MR. BASSETT:

13 as to the fifth amendment concern, Your Honor. 14 MR. BALDIGA: No.

15 amendment is not implicated if the Government were to 16 provide things directly to the trustee.

17 other issues the Government has, but we would not stand in 18 that way. And we would ask the Government to do that just 19 as this Court suggested two months ago. 20 MR. BASSETT:

21 argument. Because if they're allowing it to happen, it's 22 form over substance. How could it be any different?

24 THE COURT:

25 MR. BALDIGA: Yeah.

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Ho Wan Kwok - June 13, 2023 79 MR. BASSETT: Yes. THE COURT: -- we've already argued. MR. BALDIGA: That's right. MR. BASSETT: Agreed, Your Honor. THE COURT: Okay? So I understand where you stand. There's no real -- there has been some progress in that the questions -- the specific questions have been presented to the debtor, and he's specifically invoked his fifth amendment privilege with regard to every one of those questions, correct? MR. BALDIGA: Yes. THE COURT: Okay. So that's some progress. I'll have to take the matter under advisement and rule on what I'm going to do. There is no further progress on that -- on the issues and the positions that you've taken. So I'll have to rule on it. MR. BALDIGA: I think so, Your Honor. I think that's where we are. MR. BASSETT: Thank you, Your Honor. MR. BALDIGA: And I think we've had good-faith discussions about this. It's not for lack of trying. But I think it is before the Court. THE COURT: Okay. Thank you. MR. BALDIGA: Thank you, Your Honor. THE COURT: Thank you both.

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1 MR. BASSETT: Thank you. 2 THE COURT: All right.

3 MR. BALDIGA: Your Honor, may I be excused? 4 THE COURT: Yes, you may. 5 MR. BALDIGA: Thank you. 6 THE COURT: Thank you. 7 So the final matter on the calendar today then is 8 the status conference in the adversary proceeding, the 9 interpleader action that's been brought by the escrow agent. 10 Attorney -- Trustee Despins, do you wish to be heard? 11 MR. DESPINS: Yes, Your Honor.

12 let me very transparent about this.

13 proceeding to become a de facto stay that the HK parties 14 get. 15 So I know that Shipman & Goodwin just filed before 16 the hearing a motion regarding what we call the first stage 17 of the interpleader, as Your Honor knows, which is, is the 18 interpleader appropriate or not.

19 that order, and we're fine with it.

20 tweaks. But, conceptually, we're fine with it. 21 It basically says that they've incurred \$45,000 or 22 so in fees. They want to keep that.

23 standard language. And they're out of the case after this. 24 So, basically, it's the first stage of any interpleader. 25 We're okay with that.

1 Shipman & Goodwin firm from the beginning. 2 So what I do want, though, is the next stage -- 3 and I -- and, by the way, I would hope that the debtor is 4 not going to oppose -- or not the debtor or -- the HK 5 parties will not oppose that first stage, the entry of that 6 order discharging U.S. Bank from the case and having the 7 money come into the Court funds. 8 So the next stage is really the -- what do we need 9 to progress towards?

10 don't want that case to become a de facto stay.

11 would like that to move very quickly.

12 we're ready -- we're going to be ready tomorrow to file a 13 motion for summary judgment on the merits. 14 And they're not -- you know, just to telegraph it 15 to the Court, it's not very complicated, which is Your Honor 16 has already found that this is property of the estate and 17 also directed the HK parties to do everything to transfer 18 the asset. And it's very simple.

19 that agreement other than U.S. Bank: the creditors' 20 committee -- and Mr. Goldman is here, and he will tell you 21 that he's prepared to send directions to anyone to give the 22 money to the trustee.

23 they were directed by Your Honor to do whatever is in their 24 power to transfer the money. 25 So they will say, oh, no, no, we have to wait for

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1 a final order under Article 4 and all that.

2 is, the two parties to the agreement can agree together 3 and -- to say we don't want the escrow agreement anymore 4 and, by the way, there's no escrow agreement anymore, 5 because the funds are being put -- placed with the Court. 6 And so, therefore, we want to file a motion for 7 summary judgment to get access to the funds, and we would 8 like -- and we want to discuss the scheduling of that, Your 9 Honor, today. 10 THE COURT:

12 MR. DESPINS: U.S. Bank. 13 THE COURT: -- by Shipman & Goodwin?

14 can't that just be set for a hearing with objection deadline 15 as well? 16 MR. DESPINS:

17 have -- even have to do that, because the -- it's really -- 18 the issue is only is the interpleader appropriate.

19 trustee agrees with that.

20 agrees that the interpleader is appropriate.

22 THE COURT: Right.

23 scheduling order that they have to respond to the motion, 24 and then we have a hearing, and I decide one way or

Ho Wan Kwok - June 13, 2023 83 MR. DESPINS: Yes. THE COURT: -- that may or may not happen more quickly than a motion for summary judgment process. MR. DESPINS: Well, the motion for summary judgment would not be on that point. It would be on the ultimate -- THE COURT: Well, right. You're going to have to do that anyway. MR. DESPINS: Yeah. THE COURT: But right now, we're talking about the money being in escrow, correct? MR. DESPINS: Correct. And so I would think that first phase should not be complicated. Again, it's not opposed by the trustee. It's not opposed by the creditors' committee. I would hope that the HK parties don't oppose it. But if not, there should be a very short scheduling for -- THE COURT: Well, I'm going to require a response from the HK parties. I mean, I'm going to -- to the motion that was filed by -- everyone on -- everyone other than the -- unless the HK parties are going to stand up right now and tell me they have no opposition to the monies being deposited into the registry of the Court and to discharge the plaintiff from the interpleader action, then I'm going to require a written response. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 83 of

Ho Wan Kwok - June 13, 2023 84 MR. MORIARTY: So I will stand up, Your Honor, on behalf of the HK parties, and I will tell you that I cannot make that representation right now, because I do not have authority to do so. THE COURT: Okay. Well, that's fine. Then the -- there's going to be a short time frame for a response. This is an adversary proceeding. The Court can set deadlines in an adversary proceeding with or without a hearing for -- under our local rules with regard to motions. And there's a motion right now that's been filed to deposit the funds into the registry of the Court. And so that's how we'll proceed. With regard to your summary judgment, go right ahead. Do you have suggested dates? MR. DESPINS: Other than as soon as possible, Your Honor. Because, again, it becomes a de facto stay -- THE COURT: Well, you need to tell me when you're going to file the motion. MR. DESPINS: Tomorrow. We'll be ready to file it tomorrow, Your Honor. By close -- by midnight tomorrow, we'll file our summary judgment motion. THE COURT: All right. I need to look at the calendar. MR. DESPINS: Any chance we could squeeze that in for the 29th? I know we're already squeezing -- THE COURT: Well, I think I have to give Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 84 of

1 appropriate time frames for a response to summary judgment 2 under the local district court rules and our local rules. 3 MR. DESPINS:

4 Your Honor. 5 THE COURT:

6 shorten it, and you'd have to establish why it should be 7 shortened. And then opposing counsel will have a right to 8 object to your motion for shortening time. Okay? 9 MR. DESPINS:

10 summary judgment then. 11 THE COURT: All right.

12 how they're going to proceed.

13 whatever you think is appropriate in response to it. 14 MR. MORIARTY: Yes, Your Honor.

15 things. There was some communications between Attorney 16 Despins and Attorney Kindseth in my office this morning 17 regarding this issue and potentially working out a 18 consented-to order that would get us past phase one of this. 19 And, you know, hopefully those discussions will continue. 20 We understand this is an interpleader action, and 21 phase one is really perfunctory.

22 stand in the way of phase one, assuming the papers are in 23 order. But if we can get a consented order, it would make 24 this move more quickly. 25 The one thing that I do want to say is I

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1 understand Attorney Despins wants to move this, but I 2 believe that the motion to approve the sale of the Lady May 3 is on the 29th. 4 MR. DESPINS: No. It's the 26th. 5 MR. MORIARTY: The 26th? 6 THE COURT: That's the 26th, I believe. 7 MR. MORIARTY: Okay.

8 THE COURT: I'll check for you. Hold on. 9 MR. DESPINS: It's on the 26th, Your Honor.

10 on the 29th is the fee application hearing. 11 THE COURT:

12 May is on the 27th. 13 MR. DESPINS: 27th and 28th. Yeah. 14 THE COURT:

15 one of the many motions to compel.

16 compensation hearings. 17 MR. MORIARTY: Yeah.

18 13th, but I could be mistaken.

19 motion for summary judgment that the HK parties will then 20 have to respond to at the same time that their counsel is 21 addressing motions to compel the sale of HK's asset, the 22 Lady May and the Lady May II, and the fee application are 23 all in the same week.

24 judgment motion to the mix. 25 I get that he wants to do this quickly, but --

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1 THE COURT:

2 MR. MORIARTY: -- it's just too quick. 3 THE COURT: I understand what you're saying.

4 we haven't seen any motions yet.

5 motions, no dates are going to be set yet. 6 MR. MORIARTY: Thank you. 7 THE COURT: Okay? Thank you.

9 MS. WILLIAMS: Your Honor, may I be heard? 10 THE COURT: Yes.

11 to ask you to be heard in one second. 12 I just wanted to say that in the courtroom when 13 we're discussing this adversary proceeding, there is a 14 motion for payment, Attorney Moriarty, of -- by the 15 interpleader of the -- and I know you said you don't have 16 authority. But when you said you were talking about a 17 consensual -- I think you said -- now I apologize.

18 you say was -- at your office was discussing this? 19 MR. MORIARTY: It was Attorney Kindseth. 20 THE COURT:

21 with somebody at Paul Hastings?

22 MR. MORIARTY: The trustee. 23 THE COURT: Okay.

24 of a consensual order with regard to the motion that 25 Attorney Williams has filed?

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1 MR. MORIARTY:

2 discussions around parameters of a consensual motion.

3 expect that those discussions will continue.

4 know, I don't want to represent to the Court that it's going 5 to happen.

6 interpleader is in order, this is phase one, it's 7 perfunctory, we're not going to stand in the way of it.

8 we can agree to a stipulated order, it may move it more 9 quickly. 10 THE COURT:

11 quickly if we had a stipulated order. 12 So let me hear -- may I hear, please, from 13 Attorney Williams? 14 MS. WILLIAMS: Thank you, Your Honor.

15 apologize for interrupting.

16 went to the question regarding phase one.

17 are aware, U.S. Bank as escrow agent has filed a motion to 18 deposit the funds.

19 there may be discussions regarding a stipulated motion, 20 which it is unclear whether that is a motion to deposit, and 21 a potential consensual order regarding phase one. 22 Statutorily and procedurally, the process would 23 happen through this motion to deposit.

24 escrow agent, filed the interpleader action.

25 interpleader plaintiff.

1 done is filed the motion to deposit. 2 And so to the extent that there are any 3 discussions happening in the context of what the proposed 4 order would be as it ties to phase one, our understanding 5 would be that that order would tie directly to our motion to 6 deposit. And so I didn't know if that was something that we 7 could clarify at this time during the status conference or 8 whether it was something that would be appropriate for the 9 parties to discuss otherwise.

10 sure that this wasn't something that was happening apart 11 from our motion to deposit. 12 THE COURT: Well, I completely agree.

13 I've already said that it has to be related to the motion 14 for deposit, which his why I asked Attorney Moriarty what 15 his client's position was.

16 authority right now but that there are some discussions 17 happening. 18 But I completely agree that U.S. Bank has to be 19 part of these discussions.

20 a stipulated order, has to be shown to and negotiated with 21 U.S. Bank. So I -- if I didn't make that clear at the 22 beginning of the status conference, then that is my fault. 23 Because the escrow agent and the interpleader plaintiff is 24 ready, willing, and able to pay the monies over to the Court 25 registry.

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Ho Wan Kwok - June 13, 2023 90 Now, you all -- do you all understand how the Court registry works? I mean, just like anything else, there's -- it's a deposit of funds into a registry where, you know, there's some component of interest. But I don't -- MR. DESPINS: Yes. THE COURT: But I believe that the Government retains some of that interest. I mean, I think that's what happens when you deposit funds into the registry, so -- which is another reason why if there's some agreement along the line, Attorney Moriarty, after the escrow agent -- assuming the escrow agent is out of the picture, that if there's some agreement that there -- that -- where these funds can be placed, even in the short term, that earns money differently, you need to think about that. I have no idea how you're all going to come out with your discussions. But I don't -- I would be -- it would be hard for me to understand why there wouldn't be an agreement with regard to the motion to deposit funds in the registry in the very near future. And I mean in the very near future. And then where things go from there would be between the HK parties and the trustee and not -- and the escrow agent would be removed from these issues. But I absolutely agree with Attorney Williams that whatever you're

1 doing right now has got to be keyed to the motion to deposit 2 funds into the registry of the Court.

3 questions or concerns about that? 4 All right.

5 there to address this afternoon?

6 everything that's on the calendar. 7 MR. BASSETT:

8 raise kind of by way of a status update, I -- so to speak. 9 As the Court will recall, when we were before Your Honor 10 last Tuesday, I believe it was, one of the motions that we 11 addressed at that time was the trustee's motion to compel 12 2004 discovery from certain parties.

13 were subject to that motion were Hudson Diamond entities: 14 Hudson Diamond New York, LLC, and then another entity, 15 Hudson Diamond Holdings, I believe it was. 16 THE COURT: Yes.

17 appearance. 18 MR. BASSETT: Yes.

19 THE COURT:

20 raising the issue? 21 MR. BASSETT:

22 Honor. Because I believe the Court entered the order which 23 we had negotiated with Attorney Romney on behalf of both of 24 those parties, and then we learned earlier this week from 25 Attorney Romney that apparently there was a mistake or a Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 92 of

1 miscommunication.

2 actually not the member of -- the sole member of Hudson 3 Diamond New York, LLC.

4 counsel or should not have appeared on her behalf and did 5 not have the authority to enter into that stipulation. 6 I don't know if Attorney Moriarty has more he can 7 add to that, but that's what we understand to be the current 8 state of things.

9 address what to do about the motion to compel. 10 THE COURT:

11 the 26th, right, or at least some -- or a continuation of 12 the hearing? 13 MR. BASSETT: Yes.

14 hearing with an agreement based on conversations between 15 Mr. Luft and Mr. Vartan that both of these entities would,

17 THE COURT: Right. 18 MR. BASSETT:

19 interim. 20 THE COURT: I understand. 21 MR. BASSETT:

22 entities. 23 THE COURT: I understand. 24 Attorney Henzy, I saw you stand up. 25 MR. HENZY: Yeah.

Ho Wan Kwok - June 13, 2023 93 I'd ask or my suggestion would be that the motion to withdraw that Attorney Romney filed be scheduled and that that be -- that whatever the issues are that they be addressed at that hearing. But I am aware that motion was filed. THE COURT: I think it was filed today. MR. HENZY: Yeah. I'm aware the motion was filed, and I'm aware that -- of the facts recited in the motion, Your Honor. But I don't think either Mr. Moriarty or I are familiar with -- THE COURT: I'm not suggesting you would. MR. HENZY: Yeah. THE COURT: Okay? I'm -- MR. HENZY: But I think I would just ask that it be -- that this be addressed when Mr. Romney is here. THE COURT: Yeah. I -- we're -- MR. HENZY: Because -- THE COURT: I think we're going to have to set it for a hearing. MR. HENZY: Okay. THE COURT: I'm not going to grant it without understanding -- MR. HENZY: Yeah. THE COURT: -- what's going on and how it's impacting what was an agreed-upon order with regard to Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 93 of

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Ho Wan Kwok - June 13, 2023 94 compliance with outstanding discovery and subpoenas. MR. BASSETT: And, Your Honor, from -- and that's -- obviously, we'll proceed in that manner if the Court would like to do so. The one thing I would just observe is that I believe the current state of affairs is that no one has appeared in response to our motion to compel on behalf of Hudson Diamond New York, LLC. THE COURT: Well -- MR. BASSETT: So there -- THE COURT: -- I'm not sure you can say that yet until his appearance is withdrawn. I mean, court ordered withdrawn. He's moved to withdraw his appearance. MR. BASSETT: Understood. THE COURT: I suppose I could deny that motion. MR. BASSETT: Understood, Your Honor. So we'll address it -- MR. HENZY: Yeah. And I would ask -- just ask that it be sorted out when Mr. Romney is here. Because -- THE COURT: I have to -- I -- but I understand your point. I saw the motion filed today. And I have to do something about it, obviously. MR. BASSETT: Okay. Thank you, Your Honor. THE COURT: Okay? All right. Thank you. MR. HENZY: Thank you, Your Honor. MR. MORIARTY: The only thing, if I may, that I'll

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1 add, Your Honor, is that the motion wasn't filed blindly.

2 know I spoke with Attorney Romney this morning.

3 spoke with Attorney Luft yesterday, and he explained to 4 Attorney Luft what had happened and that this motion was 5 going to be filed. 6 THE COURT: Okay. I understand that.

7 is, though, Attorney Romney entered into an agreement when 8 we already had a hearing on a motion for contempt or a 9 motion to -- I can't even keep it straight right now whether 10 we were compelling production or trying to hold him in 11 contempt at that point in time.

12 entered into an agreement that Hudson -- the Hudson entities 13 were going to produce documents and comply with the subpoena 14 by the continued hearing date. 15 Well, it doesn't seem like that's going to happen 16 now. And this isn't the first time that -- and I'm not 17 suggesting it's the same, but it's not the first time the 18 Court has been told that there's going to be a rolling 19 production or there's some agreement on production and then 20 there's no agreement on production, and we're set back 21 three, four, five weeks or months. 22 That's not how things are going to work.

23 that's -- unfortunately, it sounds like here we go again. 24 MR. HENZY:

25 I'd ask that this be sorted out when Mr. Romney is here.

Ho Wan Kwok - June 13, 2023 96 THE COURT: I understand your request. MR. HENZY: Because I don't know that it -- THE COURT: But I've read the motion. MR. HENZY: Yeah. I don't know that it is here we go again. THE COURT: Well, the motion says -- MR. HENZY: And Mr. -- THE COURT: -- I made a mistake; I didn't really represent the person that I told you, Your Honor -- MR. HENZY: Right. THE COURT: -- and all the other counsel that I swore to as a member of the bar that I represented. MR. HENZY: Yeah. And, Your Honor, I'd ask that this be addressed when Mr. Romney is here. THE COURT: It is going to be addressed when Mr. Romney is here. I'm just making -- MR. HENZY: But, Your Honor, you're -- THE COURT: -- my comments clear. MR. HENZY: -- you're making comments when Mr. Romney is not here to defend himself, frankly. THE COURT: Well, he could be here, Attorney Henzy. MR. HENZY: His -- THE COURT: He's right across the street. MR. HENZY: His motion is not on the calendar. Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 96 of

Ho Wan Kwok - June 13, 2023 97 THE COURT: So if he chose not to be here, that's not my problem. MR. HENZY: That's not true. That's not correct. He -- THE COURT: You can't file a motion to withdraw an appearance after you've already made an agreement that's binding in the case and then say I'm not going to show up and explain to the Court what happened. MR. HENZY: It's not on the calendar today, Your Honor. THE COURT: It doesn't have to be on the calendar. MR. HENZY: It's -- okay. THE COURT: Where does it say it has to be on the calendar in our local rules, Attorney Henzy? MR. HENZY: Your Honor, you schedule motions to withdraw sometimes at least. Sometimes you grant them without hearing. THE COURT: And sometimes I do. MR. HENZY: And sometimes you -- THE COURT: And sometimes I don't. MR. HENZY: Sometimes you don't. THE COURT: Right. MR. HENZY: But I don't know how Mr. Romney could have known that you would take this up -- THE COURT: I'm -- Case 22-50073 Doc 1929 Filed 06/22/23 Entered 06/22/23 16:11:59 Page 97 of

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1 MR. HENZY: -- today. 2 THE COURT: I didn't take it up.

3 comment. I'm not taking anything up. I'm not ruling.

4 made a comment. 5 MR. HENZY: Thank you, Your Honor. 6 THE COURT: Okay? Thank you. 7 All right.

8 address this afternoon? 9 MR. DESPINS:

10 Honor. Thank you. 11 THE COURT:

your point of view? 12 UNIDENTIFIED SPEAKER: No, Your Honor. 13 UNIDENTIFIED SPEAKER: No, Your Honor. 14 THE COURT: Okay. 15 UNIDENTIFIED SPEAKER: Thank you. 16 THE COURT:

17 resolved for today, and we'll turn to the 3:00 matters on 18 the calendar.

3 I, CHRISTINE FIORE, court-approved transcriber and 4 certified electronic reporter and transcriber, certify that 5 the foregoing is a correct transcript from the official 6 electronic sound recording of the proceedings in the 7 above-entitled matter.

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