Guo Wengui / Miles Guo — bankruptcy case · TRANSCRIPT · ECF #3906

1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT BRIDGEPORT DIVISION IN RE: . Chapter 11 . Case No. 22-50073 (JAM) HO WAN KWOK, et al., . . (Jointly Administered) Debtors. . . . . . . . . . . . . . . . . . . LUC A. DESPINS, et al., . Adversary Proceeding . No. 23-05017 (JAM) Plaintiffs, . . v. . . TAURUS FUND, LLC, et al., . . Defendants. . . . . . . . . . . . . . . . . . . LUC A. DESPINS, CHAPTER 11 . Adversary Proceeding TRUSTEE, . No. 23-05023 (JAM) . Plaintiff, . . v. . . LAMP CAPITAL LLC et al . . . Defendants. . . . . . . . . . . . . . . . . . LUC A. DESPINS, CHAPTER 11 . Adversary Proceeding TRUSTEE, . No. 24-05187 (JAM) . Plaintiff, . . v. . Courtroom 123 . Brien McMahon Federal Building WILDES & WEINBERG, P.C. . 915 Lafayette Boulevard . Bridgeport, Connecticut 06604 . Defendants. . Tuesday, December 10, 2024 . . . . . . . . . . . . . . . 1:08 p.m. Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 1 of 86

2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 TRANSCRIPT OF HEARING BEFORE THE HONORABLE JULIE A. MANNING UNITED STATES BANKRUPTCY JUDGE Audio Operator: Electronically recorded Transcription Company: Reliable The Nemours Building 1007 N. Orange Street, Suite 110 Wilmington, Delaware 19801 Telephone: (302)654-8080 Email: gmatthews@reliable-co.com Proceedings recorded by electronic sound recording, transcript produced by transcription service. APPEARANCES: For the Chapter 11 Trustee: Patrick Linsey, Esquire NEUBERT PEPE & MONTEITH, P.C. 195 Church Street 13th Floor New Haven, Connecticut 06510 -and- Luc A. Despins, Esquire PAUL HASTINGS, LLP 200 Park Avenue New York, New York 10166 Nicholas A. Bassett, Esquire Doug Barron, Esquire 2050 M Street, NW Washington, DC 20036 For Taurus Fund LLC, Taurus Fund Management, and Scott Barnett: Michael T. Conway, Esquire LAZARE POTTER GIACOVAS & MOYLE, LLP 747 Third Avenue, 16th Floor Fifth Floor New York, New York 10017 Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 2 of 86

``` 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 For the U.S. Trustee: Holley Claiborn, Esquire The Giaimo Federal Building 150 Court Street, Room 302 New Haven, Connecticut 06510 For G-Club International Limited and G-Club Jeffrey Sklarz, Esquire Operations: GREEN & SKLARZ LLC One Audubon Street, Third Floor Hew Haven, Connecticut 06511 For Hing Chi Ngok, Mei Guo, Hudson Diamond New York, Gypsy Mei Food Services, Leading Shine New York, and Hudson Diamond Holdings: Steven Kindseth, Esquire Zeisler & Zeisler 10 Middle Street, 15th Floor Bridgeport, Connecticut 06604 Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 3 of 86 ``` 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INDEX MOTIONS: PAGE Matter No. 3849: Ho Wan Kwok Case No. 22-50073 Application to Employ Peter Shaw as Barrister in United Kingdom Filed by Luc A. Despins on behalf of Luc A. Despins, Chapter 11 Trustee Matter No. 3559: Ho Wan Kwok Case No. 22-50073 Sealed Motion to Compromise Filed by Patrick R. Linsey on behalf of Luc A. Despins, Chapter 11 Trustee Matter No. 14: Despins v. Wildes & Weinberg, P.C. Case No. 24-05187 Sealed Motion to Compromise Filed by Patrick R. Linsey on behalf of Luc A. Despins, Plaintiff Matter No. 3855: Ho Wan Kwok Case 22-50073 Application to Employ (Compass New Jersey, LLC) as Real Property Broker for Sale of Mahwah Mansion Filed by Luc A. Despins on behalf of Luc A. Despins, Chapter 11 Trustee Transcriptionist's' Certificate Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 4 of 86

5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Proceedings commenced at 1:08 p.m.) THE COURT: Okay. And so there are people in the waiting room? Okay. There's Trustee Despins. Is there anyone else that's participating remotely or just Trustee Despins? All right. So then if you could please call the calendar, please. THE CLERK: Okay. Case Number 22-50073, Ho Wan Kwok. THE COURT: Good afternoon. If we could have appearances for the record, please. THE CLERK: Did you want me to call -- THE COURT: Oh, I'm sorry. I cut you off. I apologize. THE CLERK: It's okay. THE COURT: I'm ahead of myself. THE CLERK: Okay. THE COURT: Go ahead. THE CLERK: Also, we have 24-5187, Despins versus Wildes & Weinberg, P.C.; 23-5017, Despins versus Taurus Fund LLC, et al; and 23-5023, Despins versus Lamp Capital LLC -- LLC, et al. THE COURT: Okay. Thank you very much. THE CLERK: You're welcome. THE COURT: If we could have appearances for the Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 5 of 86

6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 record, please, starting with the Chapter 11 Trustee. MR. DESPINS: Good afternoon, Your Honor. Luc Despins, Chapter 11 Trustee, and thank you for allowing me to appear remotely. THE COURT: Good afternoon, and you're welcome. MR. BASSETT: Good afternoon, Your Honor. Nick Bassett from Paul Hastings, counsel to the Chapter 11 Trustee. Today, I'm joined by my colleague, Douglass Barron, also from Paul Hastings. THE COURT: Good afternoon. MR. LINSEY: Good afternoon, Your Honor. Patrick Linsey of Neubert, Pepe, & Monteith for the Chapter 11 Trustee. THE COURT: Good afternoon. MS. CLAIBORN: Good afternoon. Holley Claiborn for the U.S. Trustee. THE COURT: Good afternoon. MR. KINDSETH: Good afternoon, Your Honor. Stephen Kindseth, Zeisler & Zeisler, with respect to Adversary Proceeding Number 23-50234 Mei Guo, Hudson Diamond, New York, and Leading Shine, New York (phonetic). THE COURT: Good afternoon. MR. CONWAY: Good afternoon, Your Honor. Michael Conway, Lazare Potter Giacovas & Moyle. I'm here on behalf of Taurus Fund LLC. Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 6 of 86

7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Good afternoon. MR. SKLARZ: Good afternoon, Your Honor. Jeffrey Sklarz for G Club Operations LLC. THE COURT: Good afternoon. Has everyone noted their appearance that wishes to note their appearance? Okay. Thank you. Then we have several matters on the calendar today, some in the main case, some in the adversaries. Trustee Despins, how would you like to proceed this afternoon? MR. DESPINS: I think probably it makes sense to start with the two professional retention applications and - and Mr. Linsey will handle these. THE COURT: Okay. Thank you. Go ahead, Attorney Linsey. MR. LINSEY: May I approach, Your Honor? THE COURT: Yes. Thank you. MR. LINSEY: Thank you. Patrick Linsey for the Chapter 11 Trustee. If it's all right with Your Honor, I'll start with the application to employ Peter Shaw as barrister. THE COURT: Go right ahead. MR. LINSEY: That's ECF number 3855. This application is to retain Peter Shaw as barrister in the United Kingdom. Mr. Shaw will act under the instruction of the Trustee's UK counsel, Palace Partners. Mr. Shaw's leading barrister in the United Kingdom who bears the Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 7 of 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 distinction King's Counsel. As the Court is aware, the Trustee is already employing a barrister in the UK by the name of Paul Wright (phonetic). Paul Wright will continue to work cooperatively with Mr. Shaw. Mr. Wright is a more junior barrister. Mr. Shaw is a more senior barrister. However, they work in the same chambers, and they have experience working together cooperatively. The Trustee is determined that he requires a King's Counsel to represent him in connection with certain litigation matters that are ongoing in the United Kingdom, including the administration proceedings of Hamilton Capital Hamilton Capital Holding, Limited. The application in the order provide that Mr. Shaw will charge his ordinary hourly rates and will bill the state -- the estate for out-of-pocket expenses. Mr. Shaw will submit fee applications under Section 330 in accordance to the normal process. There are no objections that have been filed with respect to this application. The U.S. Trustee filed a statement of no objection, which is at Docket Number 3859. And I'm happy to answer any questions the Court may have. THE COURT: I don't -- I do not have any questions at this point in time. Thank you. Attorney Claiborn? MS. CLAIBORN: Your Honor, I have nothing to add. THE COURT: Okay. Thank you. Does anyone else

9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 wish to be heard on the application to employ Peter Shaw as a barrister in the United Kingdom? I'm just looking at the proposed order, Attorney Linsey. Attorney Claiborn, you -- the Office of the United States Trustee reviewed the proposed order; is that correct? MS. CLAIBORN: I did. I can't say that I recall looking at it -- THE COURT: Okay. But you didn't have -- MS. CLAIBORN: -- in the last 24 hours. THE COURT: -- any comments? MS. CLAIBORN: No, I did not then. THE COURT: Okay. Give me one moment then, please. I don't think I have any comments either, but I want to make sure I don't. All right. I've reviewed the application and the information submitted with the application and the proposed order granting the application for the Trustee to employ retain and employ Peter Shaw as barrister in the United Kingdom. I note that no one has filed any written objections to the application, and there is no one participating in this hearing that is objecting to the application. The Office of the United States Trustee filed a statement of no objection. And I -- the reasons for the retention are set forth in the application. And the Court understands the Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 9 of 86

1 2 3 4 reason why the Trustee is seeking to employ the barrister in the United Kingdom. For all those reasons, the application to employ is granted, and the proposed order attached to the application can enter.

5 6 7 8 9 10 11 12 13 14 15 MR. LINSEY: Thank you, Your Honor. That brings us to the Trustee's application to employ Compass New Jersey LLC, which is at ECF Number 3855 in the Chapter 11 case and ECF Number 154 in the Taurus Fund LLC adversary proceeding. The Trustee has moved for authority to employ a broker for the sale of the Mahwah Mansion. The Trustee has selected Compass New Jersey LLC, which is an affiliate of Compass, Inc. to act in this capacity. The Court will recall and is familiar that Compass, Inc. acted as broker with respect to the successful sale of the Debtor's former residence in Greenwich, Connecticut.

16 17 18 19 20 21 22 23 The Mahwah Mansion was purchased for \$26 million. In light of the property's substantial value, it's important to the Trustee to ensure that an experienced and highly qualified broker is engaged. The Trustee interviewed Compass New Jersey, as well as several other potential brokers with all of which had expertise in the luxury real estate market and determined that Compass New Jersey was best suited to market and sell the property.

24 25 In selecting Compass New Jersey, the Trustee consulted with counsel for Taurus Fund and its codefendants,

1 2 3 as contemplated under the Court's order authorizing the Trustee to undertake the sale of the mansion. I understand that such counsel, Mr. Conway, is here today.

4 5 6 7 8 9 10 11 Compass New Jersey and its five listing agents, each of whom has submitted a declaration in support of the application, are experienced and have a proven track record in New Jersey selling luxury properties and in the Tri-State Area selling ultra luxury properties. Compass is the largest residential real estate broker in the country by sales volume for the last three runnings and is currently marketing approximately 190 other properties in New Jersey.

12 13 14 15 16 17 18 The listing agents for this project together have more than 50 years of experience in the Tri-State Area, and each specializes in the marketing of single family homes. They have sold several dozens of million-dollar properties. And the aggregate number was -- it surprised me; it was a big one -- together have closed more than \$2 billion in residential sales.

19 20 21 22 23 24 25 The broker services in this engagement will include preparing for the marketing of the Mahwah Mansion, which the broker's already doing, promoting the Mahwah Mansion and actively marketing it, including by executing that marketing campaign, advertising, public relations, and undertaking digital outreach, and then managing the sale process for the Mahwah Mansion under the supervision of the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Trustee. As set forth in the application and the engagement agreement, which is attached to the application at Exhibit B, the broker will be compensated with -- with a fee of 4.5 percent of the sale price of the Mahwah Mansion. And -- and I'll explain a little bit further how that works. The agreement provides -- the broker is to share 2 percent of this fee with any buyer's broker. However, if the buyer is not represented by a broker, Compass's fee will then be reduced to 3 percent of the sale price. Cost of marketing the property, unless approved by the Trustee in writing, will be borne by the broker. The agreement's term runs through January 2nd, 2026. I do want to note one detail. Under certain limited circumstances, namely the Trustee's cancellation of the engagement prior to the expiration date or the -- there is one potential buyer that is carved out from the -- the scope of this engagement because the Trustee had been contacted by this buyer independently of the broker. So if the -- if the property is to be sold to that buyer or if the engagement is cancelled prior to the expiration of the term, then the estate will be responsible for the broker's reasonable document -- reasonable documented out-of-pocket expenses. After the Trustee filed this application -- THE COURT: What does that mean in, insofar as

13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that somebody has to justify those expenses, right? I mean, is that going to be before the Court, or is it just going to be a payment made to that broker? MR. LINSEY: Your Honor, the U.S. Trustee had the same question. THE COURT: Okay. MR. LINSEY: And we engaged with the U.S. Trustee after filing the retention application and have filed an amended proposed order that provides that an application shall be submitted to the Court to request reimbursement -- THE COURT: Okay. MR. LINSEY: -- of -- of any fees. THE COURT: Thank you. MR. LINSEY: And that application is at ECF number 3869. THE COURT: The order? That revised order? MR. LINSEY: The revised order. I apologize. THE COURT: Right. That's -- okay. MR. LINSEY: The Trustee understands that the U.S. Trustee does not object to the application being granted by entering the revised proposed order. THE COURT: Okay. Thank you. I'm holding the revised proposed order because I think it was filed yesterday. So Attorney Claiborn? MS. CLAIBORN: Yes, Your Honor. The revised order Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 13 of 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 contains a change to Paragraph 4 to provide that mechanism for the approval of expenses, should they be requested, and allows for an objection to those expenses. And so with that change, the U.S. Trustee is fine and has no objection to the approval of the employment of Compass. THE COURT: Okay. Thank you. Does anyone else wish to be heard on the application to employ the broker for the sale of the Mahwah Mansion and related relief? Okay. Hearing nothing from anyone in the Courtroom and there being no written objections to the application and no one's participating in this hearing today that's objecting. I'm looking at this revised proposed order. I just need a moment, please. All right. The only thing I would ask the Courtroom deputy to do with regard -- the proposed order is 3869. Okay? THE CLERK: Yes. THE COURT: The only thing I would ask you to do on Page 3, right before the -- right above, it is hereby ordered that, it says, and at a hearing held before this court, but it just doesn't have the date. So add -- if you would please add today's date. THE CLERK: Okay. THE COURT: December 10, 2024.

THE CLERK: Yes.

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2 3 4 THE COURT: I've reviewed the application. I understand the reason the Trustee is seeking to employ the brokers for the sale of the Mahwah Mansion.

5 6 7 8 9 10 11 12 13 As I noted, no one has filed any written objection to the application. There is no one participating in this hearing today or that's in the Courtroom today that's objecting to the relief sought. The United States Trustee's Office made some comments to a revised proposed order, which appears at ECF Number 3869, which I have now reviewed. And that order appears to be fine to the Court. So for all those reasons, the application to employees granted in the proposed order that is at 3869 can enter.

14 15 MR. LINSEY: Thank you, Your Honor. THE COURT: Thank you.

16 17 So how -- what -- what are we proceeding with next, Trustee Despins?

18 19 20 21 22 23 24 MR. DESPINS: The -- what I refer to as the sealing issue, with -- with -- you know, the background for that is -- is the Wildes & Weinberg settlement agreement, but really the -- that nobody is really questioning that -- that settlement issues. The sealing issue is we have reach a resolution with U.S. Trustee, but Mr. Bassett will handle this matter, Your Honor.

THE COURT: Okay. Thank you. Mr. Bassett?

16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 MR. BASSETT: May I approach, Your Honor? THE COURT: Yes. Thank you. MR. BASSETT: Thank you. So Your Honor, the motion before the Court, as the Trustee indicated is the Trustee's motion pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure to approve the Trustee's settlement with Wildes & Weinberg. That appears at ECF 3559. Your Honor, this is a settlement that the Trustee reached with the Wildes & Weinberg firm after extensive negotiations. The claims asserted against Wildes & Weinberg are similar to those that are asserted against many, many other Defendants, either Defendants who have actually, been the subject of a filed adversary complaint or other parties who the Trustee has tolling agreements against. As the Court is aware -- I can't recall the full count off the top of my head, but I think we are around 200 or so adversary proceedings that assert similar types of claims. The settlement agreement, as proposed by the Trustee is submitted under seal. The reason for that is - is obvious in the Trustee's view, and also, a very important Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 16 of 86

24 25 the midst of litigation, either actively with other parties, mediating with other parties, or may soon be in litigation

reason, which is that, as I said, the Trustee has -- is in

1 2 3 with other parties who are going to be the subject of, you know, the exact same types of claims involving the exact same types of issues.

4 5 6 7 8 9 And to the extent that the Trustee has to reveal at this time where he is settling with certain parties, that is going to have a very obvious impact on the Trustee's ability to maximize value for the estate in his negotiation - - negotiations with and litigation against other similarly situated Defendants.

10 11 12 13 14 15 16 17 18 Now, Your Honor, there is only one objection, that remains to the motion. That is the objection filed by G Club Operations. Nobody -- no other party in the case objects. The United States Trustee had filed an objection. That objection has been resolved pursuant to the terms of a revised proposed order, which I will highlight for the Court. The other -- other key constituents in the case, including the Official Committee of Unsecured Creditors, are on board and supportive of the settlement.

19 20 21 22 23 24 25 Your Honor, the -- the G Club objection relates only to one aspect of the settlement, as the Trustee indicated, which is the Trustee's request to have the settlement submitted under seal. The U.S. Trustee, as I said, submitted an objection on similar grounds, but that objection has been resolved, and that is pursuant to the revised proposed order that we submitted with the Court on

1 December 5th, which appears at Docket 3865.

2 3 4 5 6 The immaterial part, Your Honor -- a new provision was added to the proposed order -- this is Paragraph 5 - which states that, the although the settlement agreement may be filed under seal, the Trustee shall have and I'm just reading from the language:

7 8 9 10 11 12 13 14 The Trustee shall have until 180 days after the entry of the order to file a notice, which settlement notice shall refer to the docket numbers and dates of the original motion on this order, attach and unredacted copy of the settlement agreement, and contain certain information regarding the settlement agreement, including the parties, the settlement amount, and other information as set out in Paragraph 5 of the revised proposed order.

15 16 17 18 19 With -- with that change, Your Honor, the U.S. Trustee is supportive of the settlement. Obviously, I will let the U.S. Trustee speak for itself to the extent that I have that wrong, and then therefore the only remaining objection is the objection filed by G Club Operations.

20 21 22 23 24 Your Honor, the G Club Operations objection should be overruled in our view. This is true for several reasons, the first of which is G Club has no legitimate pecuniary interest in this settlement for -- from -- to support its objection.

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Although G Club and its counsel may sometimes wish

1 2 3 4 5 6 7 it to be the case, they have not been appointed the protector of the integrity of the bankruptcy process. There are other parties to do that, in particular the U.S. Trustee. To have a valid basis to object to the settlement, G Club Operations has to show that it has a pecuniary interest in the outcome of that motion, for example, as a Creditor of the estate. G Club is not a Creditor of the estate.

8 9 10 11 12 13 14 15 I think if one takes a step back and looks at the role that G Club and Attorney Sklarz are playing in this case more generally, it becomes clear what likely is motivating the request to have this settlement not filed under seal. G Club obviously is a Defendant in a number of other adversary proceedings. Attorney Sklarz represents a host of other defendants and avoidance actions very similar to the Wildes & Weinberg action.

16 17 18 19 20 21 And I would imagine that any of those Defendants in those actions would love to understand where the Trustee is settling with other Defendants because it obviously gives them leverage in negotiations and allows them to -- it gives them an advantage going forward, whether it's in negotiations or in litigation.

22 23 24 25 What -- what I want to point out, which is sort of ironic about the objection, too, Your Honor, is that to have for -- for one to have a legitimate interest in objecting to a 9019 motion as a purported Creditor, one would presumably

1 2 3 4 5 want to evaluate the settlement to determine if the estate is settling at too low of a figure. Because if one does have a claim and has a pecuniary interest in the bankruptcy estate, they would want to make sure that the Trustee is, in fact, maximizing value.

6 7 8 9 10 11 12 13 What's ironic about that here, I think, and exposes the true motivation of G Club, is that G Club and all the other avoidance action Defendants represented by Attorney Sklarz have taken the position throughout this case that the Trustee's alter ego claims and that the Trustee's avoidance action claims are meritless. They've objected to them. They believe they don't comply with applicable law. They believe those claims are not viable.

14 15 16 17 18 19 So from their standpoint, any settlement that the Trustee has reached with Wildes & Weinberg above zero should be a windfall from the perspective of a Creditor of the estate. So they, by definition, don't actually need to see the settlement information in order to evaluate whether to object to the quantum of the settlement being reached.

20 21 22 23 24 25 In addition, Your Honor, the -- the arguments that have been made about Section 107 and the Court's authority are not to seal the agreement, those arguments likewise should be overruled, in large part in the papers. The cases that G Club has cited to are cases where settlement agreements were proposed to the Court to be filed under seal

1 2 3 4 5 6 7 8 for the purpose of protecting a party other than the bankruptcy estate. So, for example, where, the -- the settling party had said, look, we're in negotiations with a bunch of other litigants, or we're subject to ongoing litigation with other parties, and if our settlement with the Trustee in the bankruptcy case is revealed publicly, that could affect our, the non-Debtors, leverage and interest in those other ongoing litigations.

9 10 11 12 13 And what courts have said in that situation is that is not a legitimate basis from the perspective of the bankruptcy estate to seal the settlement. Here, Your Honor, there's a very clear purpose that is in the best interest of the bankruptcy estate, and that is to help maximize value.

14 15 16 17 18 If the Trustee is forced to file publicly all the settlements that he reaches with parties in his avoidance actions, that will undoubtedly have a negative impact on his ability to maximize value in all of his remaining, ongoing adversary proceedings, and those that he has not yet filed.

19 20 21 22 23 So I'm happy to answer questions, happy to discuss any of the issues in further detail, Your Honor, but from the Trustee's perspective, sealing the settlement agreement is appropriate, and we believe G Club's -- G Club's objection should be overruled.

Thank you, Your Honor.

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THE COURT: Thank you. Attorney Claiborn, I just

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| 1 | want to ask you about -- before I hear from Attorney Sklarz | |----|-----------------------------------------------------------------| | 2 | about the issue of the United -- the United States Trustee | | 3 | had and -- and its resolution from your perspective, please. | | 4 | MS. CLAIBORN:<br>Your Honor, the U.S. Trustee -- | | 5 | THE COURT:<br>What's going on with this thing? | | 6 | MS. CLAIBORN:<br>-- remains opposed to the permanent | | 7 | sealing of settlement agreements.<br>We are sensitive to the | | 8 | issues in the case, and the U.S. Trustee has agreed that when | | 9 | we reach the six-month mark following the approval of a | | 10 | settlement agreement, that it will be made public.<br>And the | | 11 | mechanism of the notice provision we put into the new order | | 12 | does direct the parties in the right place and the right time | | 13 | to find the information that they are currently being | | 14 | deprived of. | | 15 | They also -- the expectation is that going | | 16 | forward, this mechanism will be the model on which future | | 17 | motions will be predicated, and future motions to compromise | | 18 | and settle with parties will include within those motions | | 19 | notifications to parties that the sealing is only temporary | | 20 | and lasts six months.<br>And after that, they can see it on the | | 21 | docket, and they'll be alerted to how they can find it on the | | 22 | docket. | | 23 | So based on -- on those comments, the U.S. Trustee | | 24 | is prepared to accept the proposed order that has been filed | | | |

25 at ECF 3865.

| 1 | THE COURT:<br>I have a question about what you've | |----|-----------------------------------------------------------------| | 2 | said.<br>What -- what is the -- how did you arrive at a 180 | | 3 | days as somehow being the proper time frame?<br>There are | | 4 | hundreds of adversary proceedings pending, right?<br>So -- | | 5 | MS. CLAIBORN:<br>There are.<br>It was a consensual | | 6 | resolution reached with the U.S. Trustee and the Chapter 11 | | 7 | Trustee.<br>Certainly, the U.S. Trustee's position was that you | | 8 | cannot have sealing in perpetuity.<br>It's not appropriate. | | 9 | And this was an attempt to balance the -- the issues in the | | 10 | case and yet preserve transparency on some level for | | 11 | Creditors and others who wish to monitor what's happening. | | 12 | I don't think I can provide Your Honor with any | | 13 | more of an explanation than that. | | 14 | THE COURT:<br>Okay.<br>Thank you. | | 15 | MR. DESPINS:<br>But, Your Honor, I -- I -- if I may, | | 16 | Your Honor, I -- I could, with your permission, some -- some | | 17 | put some color on that if you want to. | | 18 | THE COURT:<br>Go right ahead. | | 19 | MR. DESPINS:<br>So I had the discussion with U.S. | | 20 | Trustee with Mr. Harrington (phonetic) and -- and basically | | 21 | from my perspective, I would like to have permanent sealing | | 22 | so -- but that -- that was not in the cards to the U.S. | | 23 | Trustee.<br>And the thinking is that hopefully in six months, | | 24 | we will have -- and this may be wishful thinking, but we have | | 25 | had made a lot of progress in settling, and we're settling |

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 those -- a bunch of those every two/three days or so. So each of them will have a six-month period. So it's not today, six months for everyone. It's everyone will have a rolling six months. And hopefully by then, the release of information will not have the same damaging effect that it would have today because the others will have -- we will have settled with over the next six months or so. So that's the hope, the thinking. That's where the six months -- you know, how we ended up at six months. THE COURT: Well, as you probably can understand, I'm not necessarily aware, unless a motion to compromise is filed, about settlements. So I don't know how many cases have settled. This maybe is only the second, or is it the first that's come forward -- MS. CLAIBORN: I think this is the first one of the -- THE COURT: -- with a compromise? MS. CLAIBORN: -- avoidance. Yes. THE COURT: This is the first one? MS. CLAIBORN: Of the avoidance. There is - there were -- MR. DESPINS: Yeah. MS. CLAIBORN: -- earlier settlements at the beginning of this case for different issues and different

25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 concepts, but this is the first of the -- THE COURT: The settlement of the actual -- MS. CLAIBORN: -- avoidance actions. THE COURT: -- claims asserted. MR. DESPINS: That's true, Your Honor, because we go through this process, right, where Judge Tancredi is involved in the settlement process and issues a -- it's not a ruling because he's not acting as a judge, but it issues a some -- some kind of statement that he said that he believes that the summons is within the range of reasonableness under 9019. And then that's presented to Your Honor. You're right; it's the first one. There are, I would say, a number of others, but not a majority to -- just to give you a sense -- not a majority of the charges that are pending. And a lot of those are settlements of actions that we've never brought, like we -- that we entered into a (inaudible) agreement with the counterparty, and we're settling with them before an action is brought. THE COURT: Okay. I understand. All right. Attorney Sklarz, do you wish to be heard? MR. SKLARZ: Thank you, Your Honor. The -- the First Amendment guarantees public access to -- to the Court's docket and judicial records. The Second Circuit case of Mirlis versus Greer is binding on this. We've cited in our Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 25 of 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 briefs as well as Local Rule 5. To seal any judicial document, which a 9019 motion is, the Court must make very particular findings in accordance with LOCAL RULE 5 and, Bankruptcy Code Section 107. With respect to standing -- that is an argument raised by Attorney Bassett -- that is a red herring. The public has an absolute right to court -- court records subject to the -- the Court's sealing powers under 107. There is absolutely no case that is cited in the briefing that permits sealing of settlement agreements. The one case that allegedly supports the Trustee's position In Re Farmland is not a 9019 case. It had to do with a sale motion. Other circuits including the -- in addition to the Second Circuit and Mirlis, have held that the public has an absolute right to look at court documents in Doe versus Public Citizen, which is a Fourth Circuit case, 749 F.3d 246, and the Seventh Circuit Bond versus Utreras, U-T -- THE COURT: You've got to go back. Okay? MR. SKLARZ: I'm sorry. THE COURT: Because I can't keep up with that. You have to just go a little more slowly on that. MR. SKLARZ: I apologize, Your Honor. THE COURT: That's okay. Okay. Doe versus what? MR. SKLARZ: Doe versus Public Citizen, 749 F.3d

1 2 246, and that's the Fourth Circuit, and Bond versus Utreras, U-T-R-E-R-A-S, 585 F.3d 1061.

3 4 5 6 7 8 9 10 Again, this is not controversial. I think the - in their briefing, the Trustee says, yes, you typically do get a right to look at court records. They're saying they are super special -- they have a super special case. The Michael Goldberg case was a big Ponzi scheme case, hundreds of adversary proceedings. None of those were -- none of those settlement motions were filed under seal. That's pending in front of this case.

11 12 13 14 15 16 This is a highly, highly unusual request. We've cited a number of cases from within the Second Circuit as to why this is not allowed. It doesn't meet the requirements of 107. This -- there is not a special rule for sealing settlement agreements because the Trustee wants to settle - seal a settlement agreement.

17 18 19 20 21 22 The Local Rule -- Local Rule 5 requires again - this is a gatekeeping function of the -- of the Court to afford the effect of the First Amendment. Any such order sealing a judicial document shall include particularized findings demonstrating that the sealing is supported by clear and compelling reasons and is narrowly tailored.

23 24 25 So there was no evidence put on to meet Rule 5. They -- essentially, the argument is we don't want to -- we think G Club or any other litigation counterparty could have

1 2 3 4 5 6 7 8 a litigation advantage if they know this. Well, that -- that issue has been endlessly litigated in the cases we cite in the brief, and every court to address this issue has said that is not a reason to seal a document. Section 107 says the reasons for sealing a document. And the only -- and the only reason to seal a document is commercial -- it -- it's -- it's either disparaging. And that's why in Mirlis, the -- the Second

9 10 11 Circuit sealed -- or -- or denied a Gadfly's efforts to obtain video depositions related to a sex abuse case. So that was appropriate for sealing.

12 13 14 15 16 17 But the -- but that's an entirely different situation. The only possible exception under 107 would be comer commercially sensitive information. And -- and the cases, as we cite in our brief and as the Trustee concedes in his brief, generally say, settlement information is not commercially sensitive.

18 19 20 21 22 23 24 25 The Hempel (phonetic) -- another case cited by the Trustee, Hempel, which is cite -- which is cited on Page 12 of the reply brief indicates that the Court should follow the Hempel standard. Well, Hempel denied sealing. The court held, in this case, the Trustee has not demonstrated that filing the settlement agreement falls within the articulated exceptions to the Bankruptcy Code General rules and denied and denied the motion.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 There's just no legal support for the Trustee's position. There's no factual support for the Trustee's position. This is just a settlement in a bankruptcy case like happens every day in every bankruptcy quarter around the country from small cases to mega cases. And you -- you just don't see Trustees seeking to do this because it's not allowed. Again, for -- we first look to the First Amendment. We then look to Rule -- I'm sorry -- Code Set 11 U.S.C. 107. We then look to Mirlis, which is a binding Second Circuit authority, and then we look to our Local Rule 5. And none of the standards have been met. The -- the fact that -- any -- any citizen could bring this bring -- this motion. Anyone -- I could bring this as Jeffrey Sklarz on my own. I -- citizens have a public right to see the judicial docket, and that's -- and that's what G Club is -- is standing up for here. And that -- that's my presentation, Your Honor. If you have any questions, happy to answer. THE COURT: Thank you. No, I do not -- MR. SKLARZ: Thank you, Your Honor. THE COURT: -- have any questions. Thank you. Any reply, Attorney Bassett? MR. BASSETT: Yes, Your Honor, just briefly. So, first of all, on the standing point, I -- I would submit that

1 2 3 4 G Club absolutely lacks standing to assert the objection that it's asserting. G Club is, according to Attorney Sklarz, I guess, trying to advance the public interest generally. G Club does not have standing to do that.

5 6 7 8 9 10 11 12 G Club has standing in this case to advance its own interests, of which it has none. It has no interest in the subject matter underlying the motion before the Court for the reasons I articulated. It's not a Creditor. Its interest could not possibly be affected by whether or not the settlement that the Trustee has reached is fair and reasonable in terms of the level at which the Trustee has agreed to settle.

13 14 15 16 17 18 19 The only plausible explanation, which Attorney Sklarz, of course, did not address, but it is so obvious as to why they want to see the settlement agreement, is because they want to use it to their advantage. Attorney Sklarz is the, by far, I think, the -- the one attorney who has the most engagements in this case, including with avoidance action Defendants.

20 21 22 23 24 25 All those Defendants would love nothing more than to -- than to disrupt the Trustee's litigation process and its attempt to negotiate settlements. And by understanding where the Trustee is settling agreements and using that as a benchmark and using that as leverage in their negotiations. That's what's going on here. There's no attempt

1 2 3 to just advance the public interest generally and ensure the integrity of the process. The U.S. Trustee has weighed in, and we have resolved the U.S. Trustee's objection.

4 5 6 7 8 9 10 11 As to the -- as to the merits of the request for sealing, Your Honor, Attorney Sklarz references the First Amendment. Look, there's no dispute. The case law is clear. The Court does have discretion to authorize the sealing of settlement agreements; it has discretion to authorize the sealing of proceedings before this Court. It has that ability when necessary to protect the interests of the Chapter 11 estate.

12 13 14 15 16 17 18 19 20 We cited cases, Your Honor, where this has happened. It's not uncommon. We cited the 5050 Offshore's case, not a 9019 case, but a case where the hearing was sealed because the discussion was about a motion, I believe, to retain litigation counsel, and the subject matter of that hearing would have revealed issues related to the strategy of the litigation to potential defendants, which would obviously prejudice the estate. Therefore, the Court authorized sealing.

21 22 23 24 25 Your Honor, there are numerous examples of courts sealing settlement agreements specifically. We've cited these -- and -- and this has happened in cases that I've been involved in, that the Trustee has been involved in. We cite these in Footnote 9 of our reply brief, Your Honor, the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Adelphia case, the Cap Mart (phonetic) case, the Lyondell case (phonetic), Footnote 10, GT Advanced Technologies case. Your Honor, it is common for courts to impose whole processes, whether it's mediation or avoidance action procedures or otherwise, that is part of that process involve a mechanism for the Trustee, or whoever is a litigation Trustee, whoever it might be, to file settlements under seal in order to protect the integrity of that process and to maximize the value for the estate that can be generated as part of those litigation processes. The other thing I would point out, Your Honor, in this case is, you know, what -- what one should look at and consider and what the Court should consider in determining whether or not is appropriate to seal the 9019 motion is whether there is sufficient indicia of the reasonableness of the settlement and whether there are things that people who might maybe evaluating the settlement can point to determine whether it has -- whether -- whether it's reasonable. And in that regard, Your Honor, I think it is highly significant that the Court has put in place the mediation process overseen by Judge Tancredi. And pursuant to that process, Judge Tancredi has reviewed this settlement, just like he'll review every other settlements, and determine or not that the settlement is reasonable in his view in the best interest of the estate. He has done that here. The

1 2 U.S. Trustee has seen the settlement and knows what the settlement amount is, as has the committee.

3 4 5 6 7 8 9 10 11 Your Honor, those are the parties who have a vested interest in acting out for the overall constituents of this bankruptcy case, the committee, the U.S. Trustee, not G Club. Both those parties are fine with the proposal before the Court as modified by the revised proposed order and have no other objection to the settlement. Your Honor, for all those reasons, we think it is critical for this motion to be granted, including the request to have the agreement kept under seal. Thank you.

12 13 THE COURT: Thank you. Any response, Attorney Sklarz?

14 15 16 17 18 19 MR. SKLARZ: The cases cited by the Trustee are located on Page 7 of their brief Footnote 9 and 10, and they're all non-substantive orders. They don't have any law. There's no support. I'm not sure how they amount to anything. The 50-Off case says -- and this is -- I'm reading -- this is 213 B.R. 646 on page 545:

20 21 22 23 24 25 Similarly, the Court's order sealing the record does not bar the movements from seeking anything they may legitimately obtain via discovery. In other words, there's another mechanism to get the information they're seeking. There is no such -- accessing the Court document -- a docket cannot occur by discovery. It occurs through PACER.

| G Club is a member of the public and has a right | |----------------------------------------------------------------| | to see the -- see the docket.<br>Anyone -- anyone can bring a | | motion like -- like this or oppose the sealing of the -- of - | | - of a document.<br>This goes beyond a specific issue.<br>And, | | again, Rule 5 applies, Section 107 applies, Mirlis applies, | | and the First Amendment applies, and the Trustee has not | | complied with any of them.<br>Thank you. | | THE COURT:<br>Okay.<br>Thank you.<br>All right.<br>With | | regard to the motion -- actually, motions, right?<br>I mean, | | one was filed in the main case, and one was filed in the | | adversary.<br>So in the main case, it's 3559.<br>And in the | | adversary, it's Adversary 2405187.<br>And it's ECF 14.<br>The | | Court will take those motions under advisement. | | MR. SKLARZ:<br>Your Honor, I don't have any matters | | before the Court.<br>May I be excused? | | THE COURT:<br>Yes.<br>Thank you. | | MR. SKLARZ:<br>Thank you, Your Honor. | | THE COURT:<br>So we are now proceeding to the motion | | for summary judgment?<br>Is that the next matter, Trustee | | Despins? | | MR. DESPINS:<br>That's correct.<br>Mr. Bassett will | | handle that.<br>Thank you, Your Honor. | | THE COURT:<br>Okay.<br>Thank you. | | MR. BASSETT:<br>Your Honor, can I approach? | | THE COURT:<br>Yes, certainly. | | |

1 2 3 MR. BASSETT: Your Honor, again, for the record, Nick Bassett from Paul Hastings on behalf of the Chapter 11 Trustee.

4 5 6 7 8 9 10 11 12 So, Your Honor, we're here today on the Trustee's motion for summary judgment, that two shell companies nominally owned by the Debtor's daughter -- that's Hudson Diamond New York, LLC, which I'll refer to generally as Hudson Diamond or maybe Hudson Diamond New York, and Leading Shine New York Limited, which I will likely refer to as Leading Shine, are alter egos of the Debtor, and each of those entities and its assets are equitably owned by the Debtor.

13 14 15 16 17 18 19 Now, Your Honor, as I've often said at hearings like this one before the Court, it seems like we've been here before. And the reason I said that is because on numerous occasions in this case, we have re-argued issues that are either the same or similar to issues that we've already argued in the past in contested matters and adversary proceedings.

20 21 22 23 24 25 I'm going to make that same comment again today, Your Honor. But I will tell you that this time I really mean it because here we are dealing with a situation where the very same Defendants in this very same adversary proceeding have already raised, and the Court has rejected, the very same arguments they are making today.

1 2 3 4 Each of the moving Defendants filed either a motion to dismiss or a motion to vacate a default judgment, raising arguments similar to the motion to dismiss, in this adversary proceeding.

5 6 7 8 9 10 Those motions raise the exact same arguments, namely and specifically, the argument that the Trustee lacks standing to pursue his alter ego and beneficial ownership claims under Section 544 of the bankruptcy code or otherwise. And the Court, after holding a hearing, overruled those arguments.

11 12 13 14 15 16 17 In addition, the Court has already decided these same issues against Defendant Mei Guo in another adversary proceeding on I think two or maybe three occasions in that adversary proceeding. That's in the HK USA adversary proceeding where the Court denied Mei Guo's motion to dismiss, and then granted summary judgment in favor of the Trustee's subsequently.

18 19 20 21 22 23 24 25 So, today, Your Honor, Defendants are here taking what is at least their fourth bite at the apple. And that's not to mention that the Court has, of course, decided these same issues, including the Section 544 standing issue and a host of other adversary proceedings involving other Defendants while the Defendants in this adversary proceeding and their counsel have been highly involved in the case during that entire time.

| 1 | So, Your Honor, I -- at some point -- I mean, | |----|----------------------------------------------------------------| | 2 | we'll -- we'll keep coming back here; we'll keep having these | | 3 | arguments, but at some point, enough is enough.<br>The | | 4 | Defendants have tried.<br>They've made the best arguments they | | 5 | think they can make, unless they're conceding today that they | | 6 | didn't do the job they wanted to do previously, and they | | 7 | failed.<br>And -- and the Court should reaffirm its prior | | 8 | rulings, and -- and we should all move on. | | 9 | Now, Your Honor -- and I -- and I'll re-argue the | | 10 | issues.<br>I'm happy to do it.<br>I'll respond to specific | | 11 | statements that the Defendants have made in their papers. | | 12 | But I felt compelled to say that at the outset. | | 13 | Now, on a motion for summary judgment, which is | | 14 | why we're here, Your Honor, you would think that the thrust | | 15 | of such a motion, instead of re-arguing legal issues that | | 16 | have already been decided by the Court, you would think that | | 17 | the Defendants would contend that the Trustee has not | | 18 | satisfied the Rule 56 standard, that the Trustee has failed | | 19 | to demonstrate that there is no genuine dispute of material | | 20 | fact on -- on the claims that he has asserted, namely his | | 21 | alter ego and his beneficial ownership claims. | | 22 | Notably, Your Honor, the Defendants here do not | | 23 | make that argument at all.<br>They paid lip service to it at | | 24 | one point, but they don't dispute virtually any of the facts | | 25 | set forth in the Trustee's statement of undisputed facts. |

1 2 3 4 5 6 And if you look at their counter statement of facts in their brief at Page 3, it is two sentences long. There was legitimately no dispute of fact with a few minor evidentiary objections which I can address at the appropriate time. But there is virtually no dispute whatsoever about the facts underlying the Trustee's claims.

7 8 9 10 11 12 13 And despite the fact that those -- that the record is -- is largely uncontested, I do want to briefly start there with walking the Court through the factual record submitted by the Trustee that supports his request for summary judgment under Rule 56. And then after that, I will address some of the moving Defendant's recycled legal arguments.

14 15 16 17 18 19 20 21 22 23 What the evidence shows, Your Honor -- and this is all thoroughly set forth in the Trustee's Statement of Undisputed Facts, and the numerous exhibits cited in that statement -- is that these Defendants, Hudson Diamond New York and Leading Shine, although they are nominally owned by the Debtor's daughter, just like many other shell companies throughout this case including HK USA, another shell company owned by the Debtor's daughter, these entities are really shell companies owned and controlled at all relevant times and acting at the direction of the Debtor.

24 25 I'll briefly run through some of the salient facts starting with Hudson Diamond. And, Your Honor, really the

1 2 3 4 5 record shows from beginning to end, from formation of the company through whatever it has done in its existence, every step of the way, it has been controlled by the Debtor or his agents, and then used to support the Debtor's personal interests.

6 7 8 9 10 11 Hudson Diamond was formed on May 30th, 2018. When it was formed, it was formed with the assistance of Hodgson Russ, which is the Debtor's personal counsel. The evidence in the record shows that Hodgson Russ took direction from Yvette Wang, the Debtor's agent and his criminal coconspirator.

12 13 14 15 16 17 18 19 Also notable, Your Honor, is that actually at the inception of -- of Hudson Diamonds forming in at the conception of its formation on May 30th, 2018, its sole member at that time was actually a different entity. Today, it is Hudson Diamond Holdings, LLC. In 2018, the sole member was Hudson Diamond Holding Inc., a BVI entity. That BVI entity was owned solely by the Debtor's son, Mileson or Chang Guo. That's also in the Statement of Undisputed Facts.

20 21 22 23 24 25 In January 2019, Hudson Diamond and the BVI transferred its membership interest in Hudson Diamond New York to Hudson Diamond Holdings, LLC, which is the current holding company owned by the Debtor's daughter, Mei Guo. So original structure, Hudson Diamond New York, Holding Company, Mileson. Current structure after 2019, Hudson Diamond New

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 York, Holding Company, Mei Guo. Went from the son to the daughter. Again Hodgson Russ, the Debtor's personal counsel, assisted with the transfer of the interest in Hudson Diamond New York from one entity to the other in 2019. And, Your Honor, in both internal Hodgson Russ emails and in emails with Yvette Wang, the Debtor in those emails is referred to as the "Principal." After its formation, what did Hudson Diamond New York do? Well, it set up shop at 162 East 64th Street in Manhattan. The Debtor's well-known address for himself, which he listed on his petition, the address used by his Attorney Aaron Mitchell, the address used by other entities that this Court has found to be the Debtor's alter egos, Greenwich Land, Golden Spring, and many others. Hudson Diamond was managed by the Debtor's agents, specifically Yvette Wang, Max Kradner -- Krasner (phonetic), and Daniel Podaski (phonetic), all of whom the Court is very familiar with, at various times served as officers and/or account signatories for Hudson Diamond. The evidence in the record, which we've cited to in our Statement of Undisputed Facts, shows that these people, that Ms. Wang, Mr. Krasner, and Mr. Podaski, refer to the Debtor as the "Boss" or the "Principal." What, if anything, did Hudson Diamond do? Well,

1 2 3 4 5 6 7 one thing it did is, first of all, Yvette Wang opened bank accounts on behalf of Hudson Diamond, and then used those accounts to pursue the debtor's interests, in particular, by purchasing real estate for the debtor. Not just any real estate, but the Taconic Road property which this Court has already found to be the Debtor's personal home, and which the Trustee, now owns and I believe has sold.

8 9 10 11 Yvette Wang signed the agreement for the purchase of that property with the real estate broker on behalf of Hudson Diamond. That agreement, part of the record, says Miles Guo in a stamp at the corner.

12 13 14 15 16 17 What else did Hudson Diamond do, Your Honor? Hudson Diamond was -- it received funding from other Debtor controlled shell companies, including ACA Capital Group and Saraca. It also transferred funds that it received to other -- to either the Debtor's family members or to other Debtorcontrolled entities.

18 19 20 21 22 23 24 25 For example, in 2019, \$600,000 transferred to the Debtor's wife. Also in 2019, a \$1,000,000 transferred to Mei Guo. During an approximately 14-month period it transferred more than \$16 million to Golden Spring. During the second half of 2021, it sent more than \$17 million to Lamp Capital. And during an 11-month period from 2019 through 2020, it transferred more than \$4.5 million to Greenwich Land. Your Honor, all of the evidence in the record

1 2 3 4 demonstrates that Hudson Diamond existed for no other purpose than to be managed and controlled by the Debtors and his - by the Debtor and his agents and to serve the Debtor's purposes, including by funding his interests.

5 6 7 8 9 10 Your Honor, I want to stress again that there is no contrary evidence whatsoever in in the record. And perhaps that's not surprising because the Defendants, in particular Mei Guo, who purports to be the ultimate owner of these entities, has no ability to put on that evidence. And this is where her Fifth Amendment invocation comes in.

11 12 13 14 15 16 17 18 19 Now, Defendants take issue with the Court's ability to consider that, but again, we're not asking the Court -- this is the same as in the Greenwich Land adversary proceeding. We're not asking the Court to draw a negative inference; we're simply pointing out that when a defendant when a litigant has taken the Fifth Amendment in response to an issue, they're not going to be capable of reversing course and offering testimony to support their position to the contrary.

20 21 22 23 24 That's the point, Your Honor. She's asserted - she's taken the Fifth Amendment. She couldn't present evidence to the contrary, but it doesn't matter because she hasn't. The record before the Court is the Trustee's evidence, and no evidence from the other side.

25

Briefly on Leading Shine, Your Honor. Leading

1 2 3 4 5 6 7 Shine's story is very similar to that of Hudson Diamond and so many of the other shell companies of the Debtor. Again, from it's from inception all the way through. Leading Shine was established on January 2nd, 2019. The Debtor's accounting firm this time, Janover LLC, assisted with the formation of Leading Shine, taking direction from the Debtor's agent, Max Krasner.

8 9 10 11 12 Again, like with Hudson Diamond, Yvette Wang played an integral role. She, as set forth in our Statement of Undisputed Facts, opened bank accounts on behalf of Leading Shine, and she is listed as the owner, in fact, of Leading Shine's bank accounts.

13 14 15 16 17 18 Leading Shine was funded by Debtor-controlled entities just like Hudson Diamond. For example, it received \$6 million from ACA Capital, \$350,000 from Golden Spring, \$900,000 from Saraca Media Group. What did it do with those funds? Of course, it again engaged in facilitating transfers to other Debtor-controlled entities and to his relatives.

19 20 21 22 23 On July 3rd, 2019, Leading Shine transferred \$57,000 to the Debtor's son. In another one-year period, it transferred more than \$5.4 million to Golden Spring. In August and September of 2020 Leading Shine transferred a total of \$450,000 to Greenwich Land.

24 25 Your Honor, that's -- that's only some of the evidence that we have set forth in our Statement of

1 2 3 4 5 6 7 8 Undisputed Facts because I'm trying to be somewhat concise in my remarks. The last point I want to make, Your Honor, is if the Court needed any other evidence of the fact that Defendant Mei Guo does not actually serve as the beneficial owner and controller of Leading Shine, it need look no further than what happened when Leading Shine, as the Court will recall, I think it was in January of 2024, filed a motion to vacate the default in this case.

9 10 11 12 13 14 15 16 17 18 19 20 And the -- and Leading Shine's counsel had told the Court at that time that the reason Leading Shine had been unable to file a timely answer was because his client, Ms. Guo, could not determine whether or not she owned Leading Shine. And the Court astutely recognized in its order in response to that motion that one cannot have it both ways. One cannot take the position that they beneficially own and control an entity when they're claiming that they have no idea if they do or not. And that's where we are, Your Honor. So I think there should be no dispute based on the record before the Court that there is no genuine issue of material fact as to the substance of the Trustee's claims. I

21 22 don't -- I don't think the Defendants have made any legitimate argument to the contrary.

23 24 25 So what we're left with are the recycled legal arguments that this Court has heard time and time again. The argument that they put at the forefront of their papers and

1 2 3 4 5 6 7 8 spend approximately seven pages on is the argument that the Trustee lacks standing under Section 544 of the Bankruptcy Code to pursue these claims, and they say that if the Trustee lacks standing under Section 544 of the Bankruptcy Code, then the Trustee could only pursue the claims under Section 541, and if the Trustee pursues the claims under Section 541, the in pari delicto and Wagoner Rule defenses would bar the Trustee's claims.

9 10 11 12 13 So again, just to level set, at the outset, the Court has already decided this issue three times in this adversary proceeding. It's decided the issue numerous times in other adversary proceedings including HK USA, Greenwich Land, and the HCHK adversary proceeding.

14 15 16 17 18 19 20 21 In deciding the issue in those adversary proceedings, the Court recognized that Section 544(a) of the Bankruptcy Code -- and now I'm actually quoting from the Court's decision in the motion to dismiss in this case -- it says, while Section 544(a) provide the motion to dismiss order, Section 544(a) provides a Bankruptcy Trustee with general powers to assert certain rights and powers of certain classes of hypothetical creditors.

22 23 24 25 Your Honor then went on to say, the limiting principle of Section 544(a) is that the rights and powers must be those the creditors at large could bring, rather than the particularized claims belonging to particular creditors.

1 2 3 4 5 6 The Court then further recognized that alter ego and beneficial ownership claims are, in fact, generalized claims that could be brought by any hypothetical creditor, in contexts such as, for example, post-judgment proceedings where a hypothetical creditor seeks assets upon which to execute its judgment.

7 8 9 10 11 12 Based on that reasoning, with citation to cases such as Judge Tancredi's decision in the Titan Real Estate Ventures case, and to the Second Circuit decision in Saint Paul Fire and Marine v. PepsiCo, the Court appropriately concluded that the Trustee has standing to pursue his claims under Section 544(a) of the Bankruptcy Code.

13 14 15 16 17 18 19 20 21 22 So in their opposition brief, despite having the opportunity to have made these arguments previously, and despite the Court having overruled them in the manner that I just described, the Defendants argue forcefully across seven pages that the Trustee's veil-piercing claims, I should say reverse veil-piercing claims, cannot be pursued under Section 544(a), because in Defendants' view those claims are more appropriately considered property of the estate under Section 544(a) of the Bankruptcy Code. They highlight that and bold it numerous times in their seven pages.

23 24 25 What the Defendants failed to recognize, Your Honor, is that even if they are correct in that assertion, they still lose. Because the reason, if it's true, that

1 2 3 4 5 6 these claims are property of the estate under Section 541(a), the reason the claims would be considered property of the estate under Section 541(a) is because they are general claims of creditors that inure to the benefit of all the Debtor's creditors equally. And in this regard, Your Honor, the Second

7 8 9 Circuit's decision in August of 2024, in the In Re Nordlicht case, which we cite in our papers, is particularly instructive.

10 11 12 13 14 15 Now, that case involves circumstances that are remarkably similar to ours. There was an individual Chapter 11 Debtor who was accused of using shell cubbies to hide his assets to keep him from -- keep those assets from creditors. And I saw this in the decision, I just wanted to quote it because it's almost eerie in some ways.

16 17 18 19 20 21 22 This is the way the claims were described, or the Debtor scheme that underlie the claims was described. Said, quote, to allow him to claim poverty to creditors while controlling substantial assets, the Debtor has adopted a specific modus operandi in his financial arrangements. First, the Debtor organizes a shell company with his wife, who has nominal ownership and control.

23 24 25 Second, notwithstanding his ownership, notwithstanding wife's ownership and name, the Debtor, in fact, controls and dominates the shell company, directing or

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 participating in substantially all financial decisions for it. Third, any funds or interests in the shell company are extracted to accounts held by the Debtor's wife or another closely affiliated party such as a family-owned LLC or trust. By conducting his affairs in this way, the Debtor enjoys all the benefits of owning very significant assets while telling creditors they are not his. Sounds like we're describing Mr. Kwok. Now, what happened in that case, Your Honor, is a creditor of the Debtor had pursued a reverse veil-piercing claim against some of these alter ego entities in state court. And then after the Debtor filed for bankruptcy and a Chapter 11 Trustee was appointed, the Trustee said, hey, that claim that was asserted in state court is actually a claim of the estate that I have the sole ability to prosecute and settle. And the Trustee, in fact, entered into a settlement to settle that claim with the alter ego shell companies and other parties involved. So the issue for the Bankruptcy Court, which was the Southern District of New York, Judge Drain, at the District Court in the Second Circuit, and they all agreed, was whether or not that claim, that reverse veil-piercing claim, was, in fact, a claim that the Trustee had the

1 exclusive authority to settle.

2 3 4 5 6 7 8 The Court found that it was, and the basis for that decision was that the claims according to the Second Circuit were, quote, general claims of creditors, and not specific claims of particular creditors. The claims as observed by the Second Circuit are capable of increasing the basket of assets that could be used to satisfy any and all liabilities owed by the Debtor.

9 10 11 12 13 And on that basis, the Court found that under Section 541, those claims, which are general claims of creditors, not claims that the Debtor himself would have been able to assert pre-petition, but claims of creditors, those claims become property of the estate under Section 541(a).

14 15 16 17 18 19 20 And what's important about that analysis, Your Honor, is that because those are creditor claims that become property of the estate, they are not subject to the Wagoner Rule or to the in pari delicto defense. In fact, Your Honor already recognized that on two occasions, both in the UK - the HK USA motion to dismiss decision, and in the motion to dismiss decision in this case.

21 22 23 24 25 In the HK USA decision page 15 footnote 6, the Court was observing how prior to Nordlicht, there was - there were case law in other circuits, including specifically the Third Circuit, that went through this exact same analysis, where the Third Circuit had found that a reverse

| | 50 | |----|-------------------------------------------------------------------| | 1 | veil-piercing claim was property of the estate because it was | | 2 | a general claim that could be asserted by creditors. | | 3 | And what the Court observed is if we were in the | | 4 | Second Circuit, there would be, quote, a different basis for | | 5 | largely the same result in the Second Circuit.<br>And the point | | 6 | there was that you'd get to the same place.<br>You still would | | 7 | not have a Wagoner defense or an in pari delicto defense. | | 8 | It's just a different way of getting there, it's either | | 9 | through that 541 route that I just described, or through | | 10 | Section 544(a).<br>Either way, because we're talking about | | 11 | creditor claims, those defenses do not apply. | | 12 | The Court recognized the same thing in the motion | | 13 | to dismiss decision in this case.<br>I am missing the page | | 14 | reference, but it is a -- what the Court said was, again, | | 15 | citing to the Third Circuit authority that I just mentioned, | | 16 | that, quote, in the Third Circuit, bankruptcy trustees can | | 17 | bring alter ego and beneficial ownership claims under Section | | 18 | 541 as generalized claims of creditors, not as claims of the | | 19 | Debtor, which would also avoid the Wagoner doctrine. | | 20 | So, Your Honor, even if the Defendants are correct | | 21 | that these are 541 claims, they're still not subject to the | | 22 | defenses that they seek to assert for the reasons Your Honor | | 23 | already recognized.<br>And Your Honor's decision is consistent | | 24 | with another case, In Re Harmon.<br>It's 529 B.R. 352.<br>This is |

Bankruptcy Northern District of Georgia 2015, that is

1 squarely on point.

2 3 4 5 6 7 The Court, in that case, was dealing with alter ego claims that could have been brought by the Debtor's creditors outside of bankruptcy, but inside of bankruptcy could only be brought by the Trustee, because it found that they were part -- they were property of the standard of Section 541.

8 9 10 11 12 And what the Court said was, quote, the defense of in pari delicto is not applicable here. As discussed above, binding Eleventh Circuit precedent informs that the Trustee has authority under Section 541 to bring alter ego claims, which could be brought by the Debtor's creditors.

13 14 15 16 17 18 19 20 The Court went on to say because the Trustee stands in the shoes of creditors whose claims are unable to proceed because of the bankruptcy, it would be inequitable to prevent creditors from asserting their claims due to the existence of the bankruptcy while simultaneously imputing the Debtor's alleged conduct on the Trustee. The doctrine of in pari delicto would not apply to the Debtor's creditors, therefore it should not apply to the Trustee.

21 22 23 24 25 So Your Honor, the Defendants lose either way. They lose if these are claims that are brought under Section 544(a), they lose if their claims are brought under Section 541. They also lose for a third reason, which is that even if there were claims under Section 541, to which the Wagoner

1 2 3 4 5 6 7 8 9 Rule and the in pari delicto doctrine might apply, then they would lose because the insider exception to the in pari delicto and Wagoner Rule would apply in this situation as it has in past situations in the same Chapter 11 case. Your Honor, I've been speaking for a while, so I'm going to go through some of the other arguments more briefly. Again, I think the Section 544 argument was the focal point of their papers, and I wanted to make sure I addressed that at some length.

10 11 12 13 14 15 16 17 18 19 They also argue, Your Honor, that the Trustee's alter ego claim cannot be asserted and must fail because alter ego under New York law is a remedy and not a substantive claim. Again, I'd point the Court to the Nordlicht case. That argument was made there. The Second Circuit's response to that was, quote, the contention that alter ego theories of liability are not claims under New York State law at all, but remedies is baseless. Under New York law, one can assert alter ego as a claim, as the Trustee has done here.

20 21 22 23 24 25 Your Honor, they also argue that the Trustee's claims, for beneficial ownership of assets fail, because under the nominee doctrine, they say the Trustee has to identify each asset with specificity and explain his ownership over that asset. It's an ironic argument to make in a scenario where the only assets that have been identified

2

3

that these entities have are bank accounts, which the Trustee has shown extensive evidence of the Debtor's ownership and control over.

53

4 5 6 7 8 9 So, I don't really understand where that argument is coming from, but I think it can be projected on that basis. Your Honor, the Defendants also argue that the relief the Trustee seeks should not be granted on a nunc pro tunc basis. We've addressed this argument time and time again as well.

10 11 12 13 14 15 16 17 18 By my count, the Court has rejected this argument and granted the Trustee, has issued orders that as a result of the Trustee's alter ego rulings, the assets of the alter egos are and always have been the property of the estate. The Court has issued that ruling in the HCHK adversary proceeding, and the -- or in the, sorry, the HK USA adversary proceeding, the Golden Spring adversary proceeding, the Lamp Capital adversary proceeding, the Greenwich Land adversary proceeding, and the HCHK adversary proceeding.

19 20 21 22 23 The argument that the Defendants make here is that, according to them, the only way nunc pro tunc relief can be granted is to, quote, correct a clerical mistake or a ministerial defect, and then they accuse the Trustee of seeking to rewrite history.

24 25 Your Honor, what we're doing is the exact opposite. And in fact, we're not seeking nunc pro tunc

1 2 3 4 5 6 relief at all. What we are seeking is to prevent history from being rewritten by the Debtor and those who aided the Debtor in perpetuating his long running fraudulent shell game. The reality, economically and substantively, has always been that the Trustee beneficially owned and

7 8 9 10 11 controlled Hudson Diamond and Leading Shine and their assets. The declaratory judgment that we're seeking, the order that we're seeking, is simply affirming that reality. We're not trying to rewrite history; we're trying to prevent it from being rewritten by the Debtor.

12 13 14 15 Therefore, Your Honor, not only is that entirely appropriate to do, but it is also not seeking nunc pro tunc relief at all. So all the cases they cite about that are completely inapposite.

16 17 18 19 20 I would also point the Court to numerous cases that we cited on this topic and another brief filed in this case, the joint briefing in the avoidance actions that's on the main docket at ECF 3803. Extensive discussion of that issue there.

21 22 23 24 25 Your Honor, another argument that Defendants make is that Delaware law follows the identity -- or sorry, follows the vicarious liability theory of liability and not the identity theory. So according to the Defendants, all the Trustee's alter ego ruling would do is make these Defendants'

1 2 3 assets available to satisfy claims of the Debtor's creditors, but would not actually render the assets property of the estate.

4 5 6 7 8 9 10 11 12 13 That, too, has been thoroughly briefed elsewhere, including in the other briefing that I just referenced. Your Honor, it's also an issue the Court has decided on multiple occasions, including specifically in the HK USA proceeding against Mei Guo, where the Court said in that order, quote, in conjunctions with -- in conjunction with Sections 541 and 542, alter ego accomplishes the transfer of assets into the bankruptcy estate, end quote. Again, that's against Mei Guo, who's a defendant here, binding on her. No question. The issue has been decided and settled.

14 15 16 17 18 19 20 To the extent -- you know what, Your Honor, I'm going to skip to last couple of arguments to speed this up. Your Honor, I think -- I think that actually covers the landscape. I'm happy to drill down either on the issue of the identity theory versus the vicarious liability theory, or any of these other arguments that the Defendants make.

21 22 23 24 But in closing, I just want to, again, stress that there is no dispute, let alone a material dispute or a genuine dispute about the relevant facts in this case. I think they are almost entirely agreed upon.

25

The only issue is whether the Court should revisit

| 1 | and reverse itself on decisions that it already made on the | |----|---------------------------------------------------------------| | 2 | legal issues that the Defendants raise in response to the | | 3 | motion for summary judgment.<br>For the reasons that I've | | 4 | articulated and as we have set forth in our papers, we do not | | 5 | think there's any basis for the Court to do that, and | | 6 | therefore, we would ask for our motion to be granted.<br>I'm | | 7 | happy to answer any questions the Court may have. | | 8 | THE COURT:<br>Thank you, I do not have any questions | | 9 | at this time.<br>Thank you. | | 10 | MR. BASSETT:<br>Thank you, Your Honor. | | 11 | THE COURT:<br>Attorney Kindseth. | | 12 | MR. KINDSETH:<br>Thank you, Your Honor.<br>Steven | | 13 | Kindseth, Zeisler & Zeisler for Mei Guo, Leading Shine New | | 14 | York, and Hudson Diamond New York. | | 15 | Your Honor, first and foremost, these issues | | 16 | largely have been fully briefed, and I'm not going to try to | | 17 | regurgitate the arguments in the briefing, and as counsel | | 18 | pointed out, this Court has considered and decided these | | 19 | issues on multiple occasions.<br>Arguments were made in favor | | 20 | of summary judgment, we opposed summary judgment, and we | | 21 | believe it is appropriate that summary judgment be denied for | | 22 | the reasons set forth in our briefing. | | 23 | I would also acknowledge, Your Honor, with respect | | 24 | to the legal issues that you've decided in this adversary | | 25 | proceeding, those are obviously law of the case.<br>And the | | | |

| 1 | Court has the discretion not to reconsider the prior | |----|----------------------------------------------------------------| | 2 | decisions of this Court, in which we respect.<br>But for the | | 3 | reasons set forth in our briefing, we are asking the Court as | | 4 | to some discrete legal issues to reconsider those decisions. | | 5 | Before I get into argument, I'll also point out, | | 6 | Your Honor, as Your Honor is aware, many of these issues have | | 7 | been briefed on an omnibus basis pursuant to this Court's | | 8 | order, and those briefs have been filed.<br>I have the docket | | 9 | numbers for Your Honor, if you want them to -- I don't think | | 10 | it's necessary. | | 11 | THE COURT:<br>I don't need the docket numbers. | | 12 | Thank you. | | 13 | MR. KINDSETH:<br>Okay.<br>And those are going to be | | 14 | argued on January 15th, and -- | | 15 | THE COURT:<br>Those are all in avoidance actions, | | 16 | though, Attorney Kindseth.<br>This isn't an avoidance action. | | 17 | Those issues are -- you can argue that they're the same, but | | 18 | summary judgment is based upon the facts.<br>And the facts of | | 19 | those cases are that those are avoidance actions.<br>This case | | 20 | is about alter ego. | | 21 | MR. KINDSETH:<br>Correct.<br>The similarity -- there | | 22 | is distinctions, of course, Your Honor.<br>The similarity is | | 23 | that, as Attorney Bassett pointed out, we're relying upon | | 24 | legal arguments largely.<br>And some of those legal arguments | | 25 | are identical. |

| 1 | And so actually just to be clear, Your Honor, the | |----|-----------------------------------------------------------------| | 2 | Trustee incorporates by reference arguments made in his | | 3 | briefing with respect to the omnibus briefing into the | | 4 | proceeding here today.<br>And so I just wanted to point that | | 5 | out to this Court.<br>Considering the extensive briefing, I'm | | 6 | going to limit my comments to a couple points, Your Honor. | | 7 | First, with respect to standing, again, Your Honor | | 8 | has decided this issue.<br>Your Honor decided that the Trustee | | 9 | had standing under 544(a) of the Bankruptcy Code, the strong | | 10 | arm statute.<br>And I would like to point out in asking the | | 11 | Court to reconsider that, I'm not rearguing it, I'm just | | 12 | pointing out the -- | | 13 | THE COURT:<br>How do you ask a court to reconsider a | | 14 | ruling in opposition to summary judgment?<br>Wouldn't you have | | 15 | to file a motion for reconsideration? | | 16 | MR. KINDSETH:<br>Well, the Trustee's argument that | | 17 | he is entitled to judgment as a matter of law because there | | 18 | are no genuine issues of material fact rely upon the | | 19 | argument.<br>And this Court can incorporate its prior argument, | | 20 | but the argument that the Trustee needs to incorporate is | | 21 | that the Trustee has standing. | | 22 | And if Your Honor applies law of the case, we | | 23 | respect that.<br>We are simply pointing out that Picard v. | | 24 | JPMorgan Chase limited the PepsiCo decision based upon the | | 25 | alleged claim constituting property of the estate rather than | | | |

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59

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 relying upon the strong-arm powers under 544(a). And because of that, we are arguing that the Trustee does not have the authority under 544(a) to bring generalized claims of creditors. Similarly, with respect to the -- THE COURT: What about with the Second Circuit case that was -- the decision that was issued after decisions of this Court in August of this year that addressed all these issues? What about that decision? MR. KINDSETH: Correct. I'm going to address that next, Your Honor. THE COURT: Go right ahead. MR. KINDSETH: And because that is new, the parties did not -- or we did not brief that issue. THE COURT: Well, I'm not sure it's -- that decision is new. MR. KINDSETH: Yep. THE COURT: But the issues are the same. MR. KINDSETH: And Your Honor, the distinction in Nordlicht, Nordlicht held that fraudulent conveyance and alter ego claims constitute property of the estate that could be sold pursuant to Section 363 and also settled by the Trustee. So once again, Your Honor, we have, cases that are being cited to rely upon, to establish the Trustee's power

1 2 3 under 544(a), the strong-arm statute, when those cases are actually saying that the claim at issue constitutes property of the estate.

4 5 6 7 8 9 10 11 12 13 14 And Your Honor, specifically, in Your Honor's decisions, and there's been multiple decisions, where Your Honor said that the Wagoner Rule and in pari delicto did not need to be considered because those applied to arguments that the Trustee has standing because it's property of the estate. And Your Honor circumvented that issue, rightful -- I mean, the reasoning made sense because Your Honor was saying under 544(a), the Trustee could exercise his strong-arm powers to pursue the claim. And so Your Honor's basis was to reject the issue of it constituting property of the estate and focusing on 544(a).

15 16 17 18 19 When PepsiCo, JPMorgan Chase, Picard, and Nordlicht all say that the claim constitutes -- the claim constitutes property of the estate. And so our argument to Your Honor, with respect to in response to law of the case and asking respectfully to --

20 21 22 THE COURT: But they -- it says that they are claims of -- they're general claims that can be asserted by creditors.

MR. KINDSETH: Yes.

23

24 25 THE COURT: Not a specific claim asserted by a specific creditor.

| 1 | MR. KINDSETH:<br>Correct.<br>So, and this has been our | |----|-----------------------------------------------------------------| | 2 | point.<br>So generalized claims of creditors -- and in fact, it | | 3 | seems as though the Trustee is stepping back from the | | 4 | argument that the claim can be brought under 544(a) and seems | | 5 | to be arguing that now, notwithstanding the Court's numerous | | 6 | prior decisions, the Trustee could bring the claim under | | 7 | 544(a), it sounds like the Trustee is now arguing that the | | 8 | claim constitutes property of the estate. | | 9 | And so and I would also point out, Your Honor, | | 10 | that this is the first time in this adversary proceeding at | | 11 | oral argument that the Trustee is now arguing that the | | 12 | Trustee has standing because the claim is property of the | | 13 | estate.<br>Now, arguments in response, but -- | | 14 | THE COURT:<br>I don't think that's what he argued, | | 15 | but you can go right ahead. | | 16 | MR. KINDSETH:<br>Okay.<br>So, and, Your Honor, if the | | 17 | Trustee's not making that argument, then we'll just live with | | 18 | 544(a) in the Court's prior decision.<br>And we are asking the | | 19 | Court to reconsider the prior decision based upon our | | 20 | explanation and the Second Circuit's decision in JPMorgan | | 21 | Chase and the decision in Nordlicht, which again did not rely | | 22 | upon strong-arm powers under 544(a). | | 23 | Expanding on the point with respect to the | | 24 | Nordlicht and the arguments made today, the Trustee has | | 25 | argued today that the Wagoner rule and in pari delicto do not |

1 apply. Well, that issue hasn't been briefed.

2 3 4 5 6 7 8 9 We haven't been arguing that these claims, and the Trustee has not relied upon the argument that these claims constitute property of the estate. And so summary judgment should not be granted based upon a legal argument raised for the first time at oral argument, which the parties have not even briefed, based upon a standing argument, which hasn't been the Trustee's standing argument throughout this case or any of the other cases.

10 11 12 13 14 15 And so I'm -- I was prepared to just simply stand with the consequence of this Court's prior decision on that the Trustee's standing is under 544. We respectfully disagree. We pointed out the reasons why in our brief, and we would ask the Court to reconsider that decision based on its discretion under law of the case.

16 17 18 19 And we think that the Court should not hold that the Trustee has standing under 544(a) to pursue the causes of action that have been brought in this case. That's the first point.

20 21 22 23 24 25 And the second point I'd like to bring to the Court's attention is with respect to the alter ego claim under New York law. Nordlicht specifically acknowledges that alter ego is not a cause of action under New York law. And, therefore, the claim asserted by the Trustee, upon which it is seeking summary judgment, is not a valid cause of action

| | 63 | |----|-----------------------------------------------------------------| | 1 | upon which judgment can enter, and therefore, summary | | 2 | judgment should be denied. | | 3 | What Nordlicht held for very specific purposes, | | 4 | whether a claim can be sold under 363, is that the alter ego | | 5 | claim is a claim under the Bankruptcy Code.<br>And so the Court | | 6 | held that it could be sold and settled. | | 7 | What's critical, Your Honor, also about Nordlicht, | | 8 | is that the Second Circuit recognized that the alter ego | | 9 | theory is a claim under the Bankruptcy Code, but it's | | 10 | actually a claim within a claim.<br>And the claim within a | | 11 | claim is under New York law, first and foremost, that there's | | 12 | liability and then they're based upon that claim, in | | 13 | conjunction with the alter ego claim, that liability could be | | 14 | imposed upon the alter ego.<br>And so -- | | 15 | THE COURT:<br>Where exactly in the decision does it | | 16 | say what you just said, Attorney Kindseth? | | 17 | MR. KINDSETH:<br>Can I get the case, please? | | 18 | THE COURT:<br>Yes. | | 19 | MR. KINDSETH:<br>So I have the Lexis number, Your | | 20 | Honor.<br>The printed version that I have does not have the | | 21 | reported number.<br>I'm not sure what -- do you have a Westlaw | | 22 | or Lexis version?<br>I can say where -- | | 23 | THE COURT:<br>I don't have any version in front of | | 24 | me right now. | | 25 | MR. KINDSETH:<br>So it's in the -- | | | |

64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: But you're telling me that this case says something that my recollection of looking at it, it doesn't say. So I'm asking you to tell me where in the case -- MR. KINDSETH: It's head note 22 -- THE COURT: Well, head note 22 doesn't help me. I want the language from the decision. MR. KINDSETH: It says before a court or jury can decide whether to impose liability on an entity or individual's alter ego, it must first be persuaded that liability ought to be imposed on the entity or individual in the first place. And -- THE COURT: But it doesn't say that liability is imposed. It says -- you just read. It says it ought to consider whether it ought to be. Those are two different things. You said that liability has to be established. MR. KINDSETH: It clearly states that it's not - that alter ego is not a cause of action. THE COURT: No, I don't think it does. MR. KINDSETH: It says that -- what Nordlicht says is it's not a remedy. But it acknowledges that under New York law -- THE COURT: Can somebody just give me the cite, please, of the case -- MR. KINDSETH: Sorry. The cite of the case is 115 Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 64 of 86

65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 F.4th 90. THE COURT: All right. Give me a second, please. 115 F.4th what? MR. KINDSETH: 115 F.4th. 90. THE COURT: So you cited to head note 22. So I'm reading in the reported decision from the West decision that appears in a book, 115 F.4th 90, page 105. Head notes 20 to 22. Personal claims, on the other hand, are claims for injury that are particular to the creditor, In Re Tronox and in which other creditors generally have no interest. In Re Emoral, citing board of Trustees of Teamsters Local 863 Pension Fund versus Foodtown, Third Circuit 2022 2002. Personal claims, therefore, are in the legal or equitable interest only of the creditor, Board of Trustees of Teamsters Local 833. Creditors are exclusively entitled to pursue personal claims, and the bankruptcy Trustee is precluded from doing so, Hirsch versus Arthur Andersen Second Circuit 95. The distinction between general and personal claims promotes the orderly distribution of assets in bankruptcy by funneling all asset recovery litigation through a single plaintiff, the Trustee, In Re Wilton Armetale Inc., Third Circuit 2020. Now going on, in distinguishing general claims from personal claims, labels are not conclusive since Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 65 of 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 plaintiffs often try but are not permitted to plead around the bankruptcy. Instead, we inquire into whether the factual origins of the injury, more importantly, into the nature of the claims asserted. For this analysis, we look to estate law applicable to each claim. That goes through this whole thing. It doesn't say under New York law it's not a claim. That's not what it says. MR. KINDSETH: Unfortunately, there's the head notes are not in line to what I have. There must be -- Lexis must have its own set of head notes. THE COURT: What footnote are you -- headnote are you talking about? Where are you in the case? Give me a page number. MR. KINDSETH: I have a Lexis number of 36. It's right -- it's in Section C, alter ego, reversed veil-piercing theory of liability. At the very end of Section C, before Section D starts, so there's the holding, right before Section D -- THE COURT: I'm not there yet. So because I don't know where you are because I'm at Westlaw. MR. KINDSETH: I apologize. I have a pre-reported decision printout. My apologies, Your Honor. THE COURT: I have -- are you at the Stadtmauer's reverse veil-piercing claim as general? Because that's what

| it says.<br>The Stadtmauer's reverse veil-piercing claim is a | |-----------------------------------------------------------------| | general claim under New York law.<br>Because we observed in | | Tronox claims on allegations of a general failure to adhere | | to corporate formalities and abuse of corporate form | | generally qualify as general claims if they are capable of | | increasing the basket of assets that would be used to satisfy | | any and all liabilities owed by the Debtor.<br>That is the case | | here.<br>That's what they say. | | MR. KINDSETH:<br>Correct.<br>And we don't dispute | | that. | | THE COURT:<br>Then what's your -- what's your point? | | I don't understand your point at all.<br>Because if you don't | | dispute that, then it's a general claim that the Trustee can | | bring on behalf of all the creditors, whether it's property | | of the estate or not.<br>So what -- it doesn't even -- your | | point -- I don't understand the point you're making. | | MR. KINDSETH:<br>The Court had previously held that | | it is a generalized claim that can be pursued under 544(a). | | THE COURT:<br>Okay. | | MR. KINDSETH:<br>That's law of the case.<br>That | | argument -- and we dispute that argument but it's law of the | | case.<br>And the Court has discretion -- | | THE COURT:<br>Well, I think it's more than law of | | the case.<br>I think it's binding law in the Second Circuit at | | this point.<br>But go ahead. | | |

| Case 22-50073 | Doc 3906<br>Filed 12/16/24<br>Entered 12/16/24 11:54:31<br>Page 68 of 86 | |---------------|--------------------------------------------------------------------------| | | 68 | | 1 | MR. KINDSETH:<br>Okay, so we respectfully ask the | | 2 | Court to look at JPMorgan Chase, and -- | | 3 | THE COURT:<br>That was cited -- that was decided | | 4 | before Nordlicht. | | 5 | MR. KINDSETH:<br>Correct.<br>And Nordlicht does not | | 6 | rely upon 544(a).<br>So, Judge, I'm trying to be -- | | 7 | THE COURT:<br>Because it didn't have to.<br>But it | | 8 | still raised the -- it still went through the analysis of | | 9 | whether or not it's a general claim that's available to be | | 10 | prosecuted and pursued only by a Trustee.<br>And that's what | | 11 | the -- that's what the case found. | | 12 | It found that the reverse veil-piercing claim | | 13 | under New York law, which is what you're arguing, is a | | 14 | general claim and that the only proper party to bring that | | 15 | claim is the Trustee.<br>That's what they're saying.<br>That's -- | | 16 | I'm reading the Second Circuit opinion.<br>That's what it says. | | 17 | MR. KINDSETH:<br>Your Honor, if I may, there's two | | 18 | options to the Trustee.<br>One is to argue under 544(a).<br>The | | 19 | other is to argue that it's property of the estate.<br>They're | | 20 | different arguments entirely.<br>Okay? | | 21 | So just step by step, Judge, 544(a) or -- | | 22 | THE COURT:<br>I understand.<br>I understand.<br>You | | 23 | don't have to go through it.<br>I don't agree with you. | | 24 | MR. KINDSETH:<br>Okay.<br>So we've been -- this entire | | 25 | case, all the avoidance actions, alter ego arguments have all | | | |

69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 been premised upon -- THE COURT: The avoidance actions are different than the alter ego actions. You keep trying to make them the same. MR. KINDSETH: But they depend upon -- since all the transferors were alleged alter egos, then it -- there's the predicate argument that the alter egos actually constitute property of the estate and therefore their transfers may be avoided. And so the same issue exists in those avoidance actions as they do in the other proceedings. And so, the question is, is the Trustee entitled to standing under 544(a) exercising strong strong-arm powers or is the Trustee standing in the shoes of the Debtor because these claims are property of the estate? And the reason why the Court and the Trustee originally did not want to -- or the Trustee did not want to argue and the Court held that these were not property of the estate claims is because of Wagoner and in pari delicto and other arguments and holdings that the Second Circuit has held. And so, for quite some time, we've been -- the Court has been sustaining the Trustee's actions and alter ego arguments based on 544(a). And so -- and I had no intention of going into this issue at this length because the Court has decided it and decided it many, many times, and it's law of Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 69 of 86

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the case in 544(a) is the Court's holding the Trustees is proceeding under 544(a) under strong-arm powers. Fine. And we said you should reconsider that based upon JPMorgan Chase. Now, what the Trustee seems to be arguing is, well, just now it's the Trustee saying, oh, no. It's property of the estate and Wagoner Rule and in pari delicto don't apply. THE COURT: I don't think that's what he's saying. MR. KINDSETH: Okay. Well, then you know what? THE COURT: He didn't say that. He made three or four different arguments in response to what you've argued about standing. MR. KINDSETH: Okay. So, Your Honor, I believe -- I I'm confident Your Honor understands the point that I'm making. If Your Honor is going to stand by 544(a), so be it, but not -- THE COURT: And when we -- and the argument was that the claims were claims under 541, property of the estate. And we made a finding, or the decision says it doesn't matter whether it was 544 or 541. This Trustee still has standing. And that's the point. MR. KINDSETH: I don't, respectfully, Your Honor, my recollection of the Court's decision -- THE COURT: Well, you -- then fine. You go find it, because I think you're wrong.

71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. KINDSETH: Okay. So -- THE COURT: And you should have -- if you think that, then -- MR. KINDSETH: Well, I wasn't interested -- THE COURT: -- I'm not going to spend a lot of time on this. We have gone through this. What's your argument? Nordlicht says that they're general claims, that the only person that can bring those claims is the Trustee. That's what it says. Tell me where it doesn't say that. MR. KINDSETH: It says -- it says there are generalized claims that are -- constitute property of the estate. THE COURT: No. That's not all that it says. It says there are general claims, and the only proper plaintiff is the Trustee. That's what it says. I just read it. MR. KINDSETH: The -- correct. I agree with that. And the issue then, if the -- if the Trustee's bringing this claim based upon the fact that it's allegedly property of the estate, so now the question is, does the Wagoner Rule or in pari delicto preclude the Trustee from making that argument? That in fact -- THE COURT: No, it doesn't preclude the Trustee from making any argument. It's only if you have a valid defense under those doctrines. That's the issue. MR. KINDSETH: And you know what? That argument Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 71 of 86

| 1 | | | | has never been made. | | |---|--|--|--|----------------------|--| |---|--|--|--|----------------------|--|

2 3 4 5 6 7 THE COURT: It's been made 12 times. I've gone through the Wagoner and in -- every single time, we've gone through it. We've gone through it every single time. I can't -- I mean, that's fine. If you think it hasn't been made, then I don't know what to tell you, because it's been made.

8 9 10 11 12 13 MR. KINDSETH: Okay. I would point out, in conjunction with the motion for summary judgment, there was no argument in the motion for summary judgment with respect to the claim constituting property of the estate and the inapplicability of the Wagoner Rule or in pari delicto. And so, we argue -- in fact, we argue that 544

14 15 does not provide the Trustee with standing. And so, Your Honor, I --

16 17 18 19 20 21 22 THE COURT: You've already started by saying you're asking the Court to reconsider all its rulings. So now you're making an argument, too, that you've already made because you're saying, you know, Judge, we made these arguments already, but you didn't agree with us, so we're going to make them again. And we now ask you to reconsider that ruling.

23 24 25 And then in the interim, there's been a Second Circuit decision, which this Court is bound by, that says that the claims are general claims that can be brought only

73 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 by the plaintiff, Trustee. That's what it says. MR. KINDSETH: But not based on 544(a). THE COURT: Okay. So then, even if I agree with you, which -- then I can let them bring it under something else according to the Second Circuit. And in our motion - in the motion to dismiss, they were asserted under 541. If you -- if you want to go back to what happened, they were estate claims. They were property of the estate. And we said in the decision, it doesn't matter whether it's 541 or 544. You don't have a defense to that on standing. That's what we said. It doesn't matter. So, you know, who has standing then, Attorney Kindseth, if it isn't the Trustee? MR. KINDSETH: The creditors would have standing - - THE COURT: What creditors? MR. KINDSETH: Whatever creditor -- THE COURT: Who creditor? What creditor? No. No. MR. KINDSETH: Whatever creditor -- THE COURT: No. It has to be a specific creditor, if you're right, Attorney Kindseth. So who's the -- who's the specific creditor? MR. KINDSETH: PAX. THE COURT: PAX? PAX already brought all those Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 73 of 86

74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 claims in state court. MR. KINDSETH: And you asked me who has standing. PAX has standing -- THE COURT: No. I didn't ask you who was standing. I said, who's the right creditor? Who's the - you said all creditors. I said, no, no. What creditor? What creditor? You need to explain. You need to identify. You need to say to me there's only one creditor that can bring this cause of action. And if there's more than one, then your argument fails. MR. KINDSETH: Okay. THE COURT: So, PAX -- your answer is PAX is the only creditor that can bring an alter ego action against these entities? MR. KINDSETH: So I understand your point, Your Honor. THE COURT: That's -- I have a question pending. Is that your answer? MR. KINDSETH: No. That's not the only one. It is a -- THE COURT: Okay. Then you lose. MR. KINDSETH: Okay. So, Your Honor -- THE COURT: On that issue. MR. KINDSETH: I agree. It is a generalized claim. Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 74 of 86

75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Okay. So then let's move on. What are your other arguments? MR. KINDSETH: Can I make one -- THE COURT: Yes? Go ahead. You can make one. MR. KINDSETH: One point. If even if it's a generalized claim, it's subject to the Wagoner Rule and in pari delicto. That's my only point, Your Honor. THE COURT: Okay. Let's move on to your next argument. MR. KINDSETH: Thank you, Your Honor. With respect to the alter ego claim under New York, I was pointing out about Nordlicht acknowledging that it's not a cause of action under New York law and said it's a claim under the Bankruptcy Code, and, therefore, my argument is that the Trustee has brought it as an independent cause of action. It's not an independent cause of action under New York law. With respect to equitable ownership and the nominee doctrine, Your Honor, as held by the Second Circuit in Ahmed, it merely identifying, you know, a series of assets or grouping of assets is insufficient, that the Nominee doctrine and equitable ownership require an asset by asset analysis. There must be a nexus between all the factors necessary to establish equitable ownership and the actual transfer of funds into the account. So, our argument with respect to the equitable Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 75 of 86

1 2 3 4 5 6 ownership and the nominee doctrine, Your Honor, is it's not sufficient to just point at accounts. There has to be some showing of the interrelationship between the factors necessary to establish equitable ownership and the particular transfers to show that this particular transfer, in fact, the Debtor was the owner considering these factors.

7 8 9 10 11 12 13 14 You can't just point at an account, and it was, as pointed out by counsel, there were significant transfers into the account. There's not some sweeping principle that says, well, then everything in the account is equitably owned by the Debtor. There must be a showing based on the Second Circuit's decision, as to each particular transfer establishing that, in fact, the true owner of that transfer was the Debtor.

15 16 17 18 19 20 21 22 23 24 Highlighting this point, Your Honor, while the Trustee's -- apparently concedes this as he has to, the Second Circuit's decision at Ahmed concerning the asset by asset analysis that's required, the proposed order accompanying the motion for summary judgment asks this Court to make a sweeping determination that all assets owned by these entities are equitably owned, or were equitably owned by the Debtor and therefore are property of the estate, which is directly antithetical to the Second Circuit decision in Ahmed.

25

Your Honor, for these reasons, we're arguing and

1 2 3 4 believe that summary judgment is not appropriate. Again, we've briefed these issues extensively. Your Honor is very familiar with these issues, and we stand by the briefs that we have filed. Thank you, Your Honor.

5 6 7 8 9 THE COURT: All right. The only other thing I want to say to you is, with regard to the Nordlicht case. The Court -- the Second Circuit in this decision goes through, an entire section of this decision starting on page 109 of the West Reporter. The official reporter.

10 11 12 13 14 15 Says as an alternate theory, the Stadtmauers argue that New York law does not classify alter ego theories of liabilities as claims at all, but as remedies. They based their argument on an apparent inconsistency in Tronox's reasoning, which was pointed out and discussed by United States Bankruptcy Judge Wiles in In Re Stage Presence.

16 17 18 19 20 21 22 While recognizing that he was bound by Tronox, Judge Wiles observed that the New York Court of Appeals has made clear that under New York law, an alter ego or veilpiercing argument is not a separate, standalone cause of action. Instead, piercing the corporate veil or awarding alter ego relief is a remedy that a plaintiff may pursue. And then it -- they continue.

23 24 25 Trading alter ego and veil-piercing theories purely as remedies, however, seems inconsistent with the case law that addresses the issue of whether an alter ego claim

1 2 3 4 5 belongs to individual creditors as opposed to a bankruptcy trustee. If alter ego theories and veil-piercing theories are not standalone claims at all and instead are just remedies for other claims, then it is difficult to see how they could belong exclusively to a bankruptcy estate.

6 7 8 9 10 11 12 13 14 15 I understand the theory under which a claim may be brought, but I know of no theory under which a remedy belongs exclusively to an estate. The Second Circuit then concludes this entire discussion by saying, therefore, to the extent that New York law anywhere states or implies that an alter ego theory of liability is a remedy, that notion is trumped by the Bankruptcy Code. See BFP Resolution Trust Corp. Where the meaning of the Bankruptcy Code text in itself is clear, its operation is unimpeded by contrary state law. That's what the Second Circuit says.

16 17 18 So I just want to make the record clear that your argument about it being a remedy as opposed to a claim has been soundly rejected by the Second Circuit.

19 20 MR. KINDSETH: Correct, Your Honor. And I would --

21 22 THE COURT: So then why are you making the argument?

23 24 25 MR. KINDSETH: So, Your Honor, there's a - there's a cause of action. There's a claim under the Bankruptcy Code. And there's a remedy. Okay? So --

79 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: I just told you that there isn't a remedy. MR. KINDSETH: There's not a remedy. THE COURT: There isn't a remedy. That's what the Second Circuit just said. It's not a remedy. MR. KINDSETH: So putting aside alter ego, just for purposes of this discussion -- THE COURT: The whole -- the whole -- this is what the whole summary judgment is about. MR. KINDSETH: Your Honor, can I make a point, please? THE COURT: Yes, you can. But you can make a - you have to make a point that's a valid one, and not one that's designed to delay or not supported by the law. And there's a Second Circuit case that was issued less than three months ago that is completely against everything that you're arguing and that I'm bound to follow. So you go ahead and make your argument. But I'm not going to let you make more argument because it's now 3 o'clock, and we're going over -- you're talking in circles, and you're ignoring what is binding case law. MR. KINDSETH: We're not arguing that it's a remedy. THE COURT: You just did. MR. KINDSETH: No. I'm saying it's not a cause of Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 79 of 86

80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 action. Judge, it's not a cause of -- THE COURT: What is it then? An air balloon? MR. KINDSETH: Actually, what the Second Circuit held in Nordlicht is that it's a claim under the Bankruptcy Code that could be sold and settled. It's not a -- THE COURT: Then if it's a claim, it's a cause of action. MR. KINDSETH: That's not what the Second Circuit held, Your Honor. THE COURT: How could a claim not be a cause of action? Mr. Kindseth, a claim is a right to a payment, isn't it? Isn't that what the Bankruptcy Code defines a claim as? I think it does. Shall we look at 101? MR. KINDSETH: Your Honor -- THE COURT: So if it's a right to a payment, there's a cause of action associated with that right to the payment. Because if someone doesn't pay it, there's a right for someone to sue to get paid. MR. KINDSETH: Your Honor, as I interpret Nordlicht, and I appreciate you permitting me to say this, the Second Circuit said it may not be a cause of action under New York law, but it's a claim under the Bankruptcy Code, and therefore it can be settled. It's not a remedy. It's not a remedy. It may not be an independent cause of action, but it's a claim that may be settled and sold. That's how I read Case 22-50073 Doc 3906 Filed 12/16/24 Entered 12/16/24 11:54:31 Page 80 of 86

| 1 | the decision. | | | | | |----|---------------------------------------------------------------|--|--|--|--| | 2 | THE COURT:<br>The term "claim" means a right to | | | | | | 3 | payment, whether or not such right is reduced to a judgment, | | | | | | 4 | liquidated, unliquidated, fixed, contingent, matured, | | | | | | 5 | unmatured, disputed, undisputed, legal, equitable, secured, | | | | | | 6 | or unsecured, or a right to an equitable remedy for a breach | | | | | | 7 | of performance if such breach gives right to a right of | | | | | | 8 | payment, whether or not such right to an equitable remedy is | | | | | | 9 | reduced to judgment, fixed, contingent, matured, unmatured, | | | | | | 10 | disputed, undisputed, secured, or unsecured. | | | | | | 11 | So if it's a right to payment, Mr. Kindseth, then | | | | | | 12 | there's a cause of action associated with that claim. | | | | | | 13 | MR. KINDSETH:<br>Thank you, Your Honor. | | | | | | 14 | THE COURT:<br>Okay.<br>Thank you. | | | | | | 15 | Mr. Bassett, is there anything you'd like to add? | | | | | | 16 | MR. BASSETT:<br>very briefly, Your Honor, may I | | | | | | 17 | approach? | | | | | | 18 | THE COURT:<br>Yes. | | | | | | 19 | MR. BASSETT:<br>Just a few very, very brief points, | | | | | | 20 | just by way of clarifying the record on some of the arguments | | | | | | 21 | that Attorney Kindseth raised. | | | | | | 22 | In discussing the 544/541 issue, counsel suggested | | | | | | 23 | that this is a new argument or a new theory that we are sort | | | | | | 24 | of pivoting to midstream that has not been the subject of any | | | | | | 25 | arguments or causes of action that the Trustee has pursued | | | | | | | | | | | |

| 1 | previously in this case.<br>That's just completely not true. | |----|---------------------------------------------------------------| | 2 | In this adversary proceeding, as in every other | | 3 | alter ego adversary proceeding we have filed in this case, we | | 4 | have pursued our claims under both Section 541 and Section | | 5 | 544.<br>In fact, the Court will recall a ruling in the HK USA | | 6 | adversary proceeding, went through an analysis of both of | | 7 | those.<br>It found that we had standing to pursue the claim | | 8 | under Section 544(a), the Court also analyzed the issue under | | 9 | Section 541, and found that the insider exception to in pari | | 10 | delicto applied. | | 11 | What I would submit has changed, and what we are | | 12 | now pointing out to the Court, in light of the Nordlicht | | 13 | ruling, is that if you go down the Section 541 path, you can | | 14 | then assert what Nordlicht says is that the claim can be | | 15 | asserted as a general claim of creditors. | | 16 | And to address Attorney Kindseth's other point, | | 17 | which he says at that point you have to consider whether or | | 18 | not in pari delicto and Wagoner would apply, again, Your | | 19 | Honor has already decided that twice. | | 20 | Your Honor considered that possibility in her | | 21 | motion to dismiss in the HK USA case and in the motion to | | 22 | dismiss decision in this case, both times, the Court | | 23 | recognizing that if a cause of action is pursued under | | 24 | Section 541 because it is a generalized claim of creditors, | | 25 | then in pari delicto and Wagoner would not apply. | | | |

1 2 3 4 5 6 It's also exactly what I cited to the Court in the Harmon case that I read out during my opening argument from Georgia. The Court there squarely addressed that issue and said in that case, in that situation, obviously, those claims are not barred by in pari delicto or the Wagoner Rule because any other result would be extraordinarily inequitable.

7 8 9 10 11 It would mean that a creditor can't pursue the claim on its own, the claim becomes part of a Chapter 11 estate, and then the Trustee is not able to pursue the claim because of the in pari delicto and Wagoner doctrine. That makes zero sense. And therefore that's just a nonissue.

12 13 14 Under Nordlicht, if the claims are property of the estate as generalized claims, in pari delicto and Wagoner do not apply.

15 16 17 18 19 20 21 22 23 The other comment I want to just briefly respond to or address is the most recent one that we were talking about. I think the Court read the exact right language from Nordlicht, where there was the discussion of Tronox and the other cases, where it's very clear from that discussion of Tronox that the issue the Court was focused on in response to the argument made in that case was whether or not an alter ego claim can be considered a cause of action. That's exactly the language quoted from Tronox.

24 25 And then as Your Honor went through and read the rest of it, the Court said in bankruptcy, it wouldn't make

1 2 sense to say that an alter ego claim cannot exist as a standalone cause of action.

3 4 5 6 7 8 9 Now, what Attorney Kindseth is trying to say is that an alter ego claim generally is used outside of bankruptcy to supplement or serve as a companion to another claim. So if outside of bankruptcy, a creditor brought a breach of contract claim against a party, and then, in order to satisfy that judgment, sought to pierce the corporate veil, that alter ego claim would be tacked on.

10 11 12 13 14 15 16 17 That is completely irrelevant and unnecessary bankruptcy as Nordlicht pointed out. The reason being, the Trustee stands in the shoes of all the thousands of creditors of the estate. All of those creditors of the estate have claims. They've all asserted claims. PAX has asserted a claim. Other creditors have asserted claims. To the extent it's necessary to have a predicate claim to which alter ego or reverse veil-piercing attaches, it is those claims.

18 19 20 21 So in bankruptcy, the Trustee absolutely has, as the Nordlicht Court recognized, can pursue alter ego as a claim. We're talking about bankruptcy. We're not talking about outside of bankruptcy.

22 23 24 25 Your Honor, there were some other points I was going to respond to, but in the interest of time, I think we have it covered. Again, we respectfully would request that our motion be granted, and thank you very, very much for your

| 1 | Court's time and patience -- for Your Honor's time and | | | | | | |----|--------------------------------------------------------------|--|--|--|--|--| | 2 | patience.<br>Thank you. | | | | | | | 3 | THE COURT:<br>Thank you. | | | | | | | 4 | Attorney Kindseth, would you like to respond? | | | | | | | 5 | MR. KINDSETH:<br>Nothing further, Your Honor. | | | | | | | 6 | THE COURT:<br>Okay.<br>Thank you.<br>Okay.<br>With regard | | | | | | | 7 | to the motion for summary judgment in the adversary 23-05023 | | | | | | | 8 | that is pending before the Court, the Court will take the | | | | | | | 9 | matter under advisement and will rule accordingly. | | | | | | | 10 | Is there any further business that we need to | | | | | | | 11 | address this afternoon?<br>I think we've taken care of | | | | | | | 12 | everything on the calendar.<br>Is that correct? | | | | | | | 13 | MR. DESPINS:<br>That's correct, Your Honor. | | | | | | | 14 | THE COURT:<br>All right.<br>Thank you.<br>Then, there | | | | | | | 15 | being no further hearings on the calendar this afternoon, | | | | | | | 16 | thank you all.<br>Court is adjourned. | | | | | | | 17 | (Proceedings concluded at 3:07 p.m.) | | | | | | | 18 | | | | | | | | 19 | | | | | | | | 20 | | | | | | | | 21 | | | | | | | | 22 | | | | | | | | 23 | | | | | | | | 24 | | | | | | | | 25 | | | | | | | | | | | | | | | | | | | | | | |

| Case 22-50073 | | Doc 3906 | Filed 12/16/24 | Entered 12/16/24 11:54:31 | | Page 86 of 86 | | |---------------|------------------------------------------------------------|-----------------------|----------------------------------|-------------------------------------------------------|--|-------------------|--| | | | | | | | 86 | | | 1 | CERTIFICATION | | | | | | | | 2 | I certify that the foregoing is a correct | | | | | | | | 3 | | | | transcript from the electronic sound recording of the | | | | | 4 | proceedings in the above-entitled matter to the best of my | | | | | | | | 5 | knowledge and ability. | | | | | | | | 6 | | | | | | | | | 7 | | /s/ Wendy K. Sawyer | | | | December 12, 2024 | | | 8 | | WENDY K. SAWYER, CDLT | | | | | | | 9 | | | Certified Court Transcriptionist | | | | | | 10 | | For Reliable | | | | | | | 11 | | | | | | | | | 12 | | | | | | | | | 13 | | | | | | | | | 14 | | | | | | | | | 15 | | | | | | | | | 16 | | | | | | | | | 17 | | | | | | | | | 18 | | | | | | | | | 19 | | | | | | | | | 20 | | | | | | | | | 21 | | | | | | | | | 22<br>23 | | | | | | | | | 24 | | | | | | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |