Guo Wengui / Miles Guo — bankruptcy case · ORDER · ECF #545

Case 22-50073 Doc 545 Filed 07/13/22 Entered 07/13/22 15:20:05 Page 1 of 32

UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT BRIDGEPORT DIVISION In Re \* Case No. 22-50073(JAM) \* HO WAN KWOK, \* Bridgeport, Connecticut \* July 5, 2022 Debtor. \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* \* TRANSCRIPT OF APPLICATION TO APPOINT TRUSTEE APPLICATION FOR ORDER APPROVING APPOINTMENT OF CHAPTER 11 TRUSTEE BEFORE THE HONORABLE JULIE A. MANNING UNITED STATES BANKRUPTCY JUDGE APPEARANCES: For the Debtor: WILLIAM BALDIGA, ESQ. Brown Rudnick, LLP Seven Times Square New York, NY 10036 For the Creditor, Pacific PETER FRIEDMAN, ESQ. Alliance Asia Opportunity STUART M. SARNOFF, ESQ. Fund L.P.: O'Melveny & Myers LLP Times Square Tower 7 Times Square New York, NY 10036 PATRICK M. BIRNEY, ESQ. Robinson & Cole LLP 280 Trumbull Street Hartford, CT 06103-3597 Proceedings recorded by electronic sound recording, transcript produced by transcription service. **Fiore Reporting and Transcription Service, Inc. 4 Research Drive, Suite 402 Shelton, Connecticut 06484 (203)929-9992**

APPEARANCES Cont'd: For the Creditor's Committee: IRVE GOLDMAN, ESQ. Pullman & Comley 850 Main Street Bridgeport, CT 06601 For Creditors Rui MA, KRISTEN MAYHEW, ESQ. Zheng Wu, and Weican Meng: McElroy Deutsch 225 Liberty Street 36th Floor New York, NY 10281 For Creditor Logan Cheng: JAY MARSHALL WOLMAN, ESQ. Randazza Legal Group, PLLC 100 Pearl Street 14th Floor Hartford, CT 06103 For the U.S. Trustee: HOLLEY L. CLAIBORN, ESQ. Office of the United States Trustee The Giaimo Federal Building 150 Court Street, Room 302 New Haven, CT 06510

(Proceedings commenced at 3:54 p.m.) THE CLERK: Number 22-50073, Ho Wan Kwok. THE COURT: Okay. Good afternoon. Court is -- we just had another hearing that ran long, so I'm sorry to keep everyone waiting. If we could have appearances for the record starting with the debtor's counsel, please? MR. BALDIGA: Good afternoon. William Baldiga, Brown Rudnick, for the debtor. THE COURT: Good afternoon. Counsel for PAX? MR. FRIEDMAN: Good afternoon, Your Honor. It's Peter Friedman from O'Melveny & Myers. I see Mr. Sarnoff as well and Mr. Birney. THE COURT: Good afternoon to all of you. MR. BIRNEY: Good afternoon, Your Honor. THE COURT: Counsel for the creditor's committee. MR. GOLDMAN: Good afternoon, Your Honor. Irve Goldman, Pullman & Comley, counsel for the creditor's committee. THE COURT: Good afternoon. Counsel for Rui Ma and the other creditors? MS. MAYHEW: Good afternoon, Your Honor. Kristen Mayhew, McElroy, Deutsch, Mulvaney, & Carpenter, on behalf of creditors Rui Ma, Zheng Wu, and Weican Meng. THE COURT: Good afternoon. And counsel for the U.S. Trustee?

MS. CLAIBORN: Good afternoon, Your Honor. Holley Claiborn for the U.S. Trustee. THE COURT: Good afternoon. Do we anticipate anyone else? Oh, I'm sorry, Attorney Wolman. Go ahead. I didn't see you. MR. WOLMAN: Good afternoon, Your Honor. Jay Wolman, of Randazza Legal Group, for creditor, Logan Cheng. THE COURT: Good afternoon. I think that I've taken everyone's appearances. Is that correct? Okay. All right. So today's hearing was a hearing on an application to appoint trustee and application for order approving the Chapter 11 trustee appointment, which was ECF No. 499, and a motion to expedite the hearing, which was filed on Thursday, June 20 -- 30, excuse me -- Thursday, June 30, 2022. The order granting the motion to expedite entered, setting a hearing for today at 3:30 p.m. It's 3:58. As I said, I'm sorry. We did -- our 3:00 hearing ran later than we thought it might, but in any event, the motion to expedite was granted because the Court wasn't sure why the U.S. Trustee's Office had filed an application to appoint a trustee and asking for an order approving the appointment of a trustee, and then today,

there was a withdrawal filed by the U.S. Trustee's Office of the application.

So, Attorney Claiborn, I'm not sure what is

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happening here, but as of June 30, Mr. White -- I don't know if it's Whitley or Whitely, accepted the appointment as being a Chapter 11 trustee in documents filed on the docket of this case. He also filed an affidavit saying he was a disinterested person and, therefore, appeared to meet all the requirements of a trustee and as of June 30, became the representative of this estate. And then today, a withdrawal was filed by your office, signed by you on behalf of Mr. Harrington as the U.S. Trustee for this -- for this region. So I'm a little confused as to where things stand, and why the U.S. Trustee's office felt it even needed an order approving the appointment because under -- the documents say under 1104(d), but 1104(d) doesn't come into effect when I've already ruled for the appointment of a trustee. So your office's role, I think is what you did. You appointed a trustee. So what's the -- what's the issue now? Why is this being withdrawn? MS. CLAIBORN: Thank you, Your Honor. The process is implemented through Rule 2007.1. THE COURT: Yep. MS. CLAIBORN: Subsection C. THE COURT: No, but that subsection doesn't come

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into effect unless there's a problem. 2007.1 says that in order to appoint a trustee or examiner in a Chapter 11 case, a motion for an order to appoint a trustee or an examiner -- and that was -- that motion was already granted and that order entered.

So 2007.1 is already taken -- A is taken care of. The rest of the section talks about an election of a trustee, and there -- if there was an election of a trustee, your office would have to certify there was an election and say what the results were, and there's nothing on this docket that indicates this trustee was elected, number 1.

And number 2, if there's some problem with regard to this trustee, then it needs to be disclosed. Is the trustee resigning? Are you removing the trustee? Has the trustee passed away? I mean, those are the three grounds under which there would be a need for a court order. So -- and this trustee is still the trustee until this trustee is not, so what is the status?

MS. CLAIBORN: Your Honor, getting back to the interplay between Rule 2007.1, Subsection C, and 1104(d), the process, as envisioned by the combination of that statute and that rule, is that the Court orders the U.S. Trustee to appoint a Chapter 11 trustee, and then the U.S. Trustee is to file an application that gets approved by the Court and, thereafter, if that approval is obtained from the Court, then the Chapter 11 trustee who is appointed becomes effective.

So the U.S. Trustee has no current candidate before the Court, and there is no current Chapter 11 trustee before the Court.

THE COURT: Well, 1104(d) says, if the Court orders the appointment of a trustee or examiner, which I've already done in a memorandum of decision that was issued on June 15, if a trustee or examiner dies or resigns during the case or is removed under Section 324 of this title, or if a trustee fails to qualify under Section 322 of this title, then the United States Trustee, after consultation with parties in interest, shall appoint subject to the Court's approval, one disinterested person other than the United States Trustee to serve as a trustee or examiner as the case may be.

So it -- it already talks about the prior trustee dying or resigning or being removed. So 1104(d) deals with a successor trustee issue, not the original trustee. And so --

MS. CLAIBORN: Your Honor, I think it's important -- I apologize. THE COURT: That's all right. And so, 2007.1 is

premised on -- 2007.1(c), approval of appointment, is premised on 1104(d), which I just read, which is --

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addresses the issue of when the trustee or examiner dies, resigns or is removed.

MS. CLAIBORN: Your Honor, 1104(d) has three topics, as it were, that start that section. One is if the Court orders the appointment of a Chapter 11 trustee or an examiner. Two, if a Chapter 11 trustee or examiner dies or resigns. Or three, if a trustee fails to qualify under Section 322.

So we are in the first section. If the Court orders the appointment, which the Court has, then you skip down to the part that says, the United States Trustee, after consultation with the parties in interest, shall appoint, subject to the Court's approval, one disinterested person to serve as the Chapter 11 trustee.

THE COURT: But we don't approve the appointment of trustees in Chapter 7 cases, in Chapter 13 cases, or in Chapter 11 cases. We've never entered orders approving the appointment of a trustee unless there was an election or a dispute with regard to the trustee.

So -- but that's still not answering the question. This is the trustee. How does the trustee just get to withdraw when they already said that they are -- accepted the appointment, and now five days later they don't?

Where is the trustee and why isn't the trustee here? How do you get to withdraw a trustee? We've already

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-- we've now lost five days of which somebody was supposedly the representative of this estate and you don't have anybody else here, right? There's no successor trustee. So what is the plan? MS. CLAIBORN: Your Honor, currently there is no Chapter 11 trustee appointed. THE COURT: Well, that's not true. MS. CLAIBORN: The U.S. Trustee withdrew -- Your Honor, I respectfully disagree with -- THE COURT: Okay. Sorry. Go ahead. MS. CLAIBORN: -- the Court's interpretation of this section and the rule we've just been discussing. It's the U.S. Trustee's viewpoint that the intersection of the rule and the section require a process that the U.S. Trustee has engaged in, and that process includes the notice of appointment. It includes the application to ask the Court to approve the appointment and that process also offers the opportunity for anyone to come in and have comments or criticisms or objections to the appointment and for that process to play out. We are here today after the U.S. Trustee has withdrawn the notice of appointment and has withdrawn the application to approve the appointment and that withdrawal happened due to a late arrival of information that happened this morning with respect to a conflict search.

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The U.S. Trustee takes the role of finding a disinterested person who is qualified to perform the services of the Chapter 11 trustee seriously, and as a result of information that was provided this morning, determined that it was no longer appropriate to put forward that candidate and, therefore, withdrew the application. The U.S. Trustee is now engaged in trying to fill the role with another candidate. THE COURT: So you're saying as of this morning the trustee disclosed more information that resulted in the determination that the trustee has a conflict of interest and is not a disinterested person? MS. CLAIBORN: Correct. THE COURT: Even though the trustee -- MS. CLAIBORN: Correct. THE COURT: -- signed an affidavit that said he was? MS. CLAIBORN: Correct. THE COURT: Well, isn't that a problem. MS. CLAIBORN: Your Honor, it is unfortunate and the timing of this does cause a delay for which the U.S. Trustee is also unhappy about but, nevertheless, it's appropriate to select and install a person who is conflict free and who has the appearance that he can be impartial to all parties involved in this case.

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And the determination was made by the U.S. Trustee that it was appropriate to withdraw that trustee who was noticed last week and, therefore, that's what I did today. THE COURT: Well, but it's not a withdrawal, because you're saying he's not qualified now. He doesn't meet the qualification, so it's a removal because he's the trustee. MS. CLAIBORN: Your Honor -- THE COURT: He accepted the appointment -- MS. CLAIBORN: Your Honor, that -- THE COURT: -- as of June 30, and he posted a bond -- MS. CLAIBORN: Your Honor, I respectfully disagree with the Court. THE COURT: -- and he submitted an affidavit. MS. CLAIBORN: The appointment -- THE COURT: I already ordered the appointment. MS. CLAIBORN: -- (indiscernible) become effective in the case. THE COURT: I ordered the appointment of a trustee on June 15th. MS. CLAIBORN: Your Honor directed the U.S. Trustee to appoint a Chapter 11 trustee by order that entered on June 15th. THE COURT: That is correct.

MS. CLAIBORN: Correct. THE COURT: And you did that. Now you're saying this person is not qualified. Well, that -- there should be a process -- you can't withdraw it. How would anybody know that this person isn't -- isn't -- no longer qualified? How is that transparent? And what's the conflict? I mean, he signed an affidavit saying that he had no conflicts and that he was a disinterested person. That's what he said. The Court has to be able to -- and the creditors and the public have to be able to rely on that. So this should be a removal. This should be a motion to remove the trustee for being -- not being qualified under Section 324 of the code. I don't think you can withdraw the application. You've already appointed him, subject to approval. So maybe I don't approve it, but you can't not tell everybody what the problem is. The problem is there is some conflict of interest that came up today when the individual already signed a document that accepted the appointment and submitted an affidavit that said he had no conflict of interest and was a disinterested person. So how does that -- I mean, I don't see how you can withdraw the appointment. I don't see it. There's nothing in the code that allows that to happen. The removal

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of a trustee -- MS. CLAIBORN: Your Honor, by virtue of the -- THE COURT: -- or examiner is under Section 324. MS. CLAIBORN: Your Honor, the appointment and the approval process is set forth, as we discussed today, in 1104(d), and section -- sorry, Rule 2007.1. THE COURT: I don't -- you know, I -- MS. CLAIBORN: And the process has not been finished, the appointment has not been approved, and the U.S. Trustee, based upon the information provided today, determined that it was appropriate to withdraw the notice of appointment which we have done. THE COURT: Yeah, but you didn't say why. If I didn't have this hearing, nobody would know why. MS. CLAIBORN: Your Honor, that's correct. The withdrawal does not cite a reason, and due to the governmental privilege and the deliberative process that the U.S. Trustee engages in, I am not in a position to share that reasoning or that discussion with the Court or with the parties. But it was in the best interest of the estate and the creditors and the process to not pursue the selected candidate. THE COURT: Does anyone else wish to be heard on this issue, because we've now lost five days of which

somebody was supposedly in charge of this estate. And then what happens? What if something happened in the last five days? You're saying, oh, and by the way -- so you're saying that even though there was a trustee appointed and you note -- you had -- you noticed it, it really didn't take effect until there is a court order. That's crazy. MS. CLAIBORN: That's correct, Your Honor. THE COURT: I already ordered the appointment of the trustee. If someone wants to object to the -- MS. CLAIBORN: Your Honor entered an order directing the U.S. Trustee to appoint a trustee -- THE COURT: I didn't direct anybody. I granted a motion -- MS. CLAIBORN: -- and that's the process. THE COURT: -- that said a trustee shall be appointed. That's what it said. MS. CLAIBORN: Correct. And there's a process that follows and so that's what we had done. THE COURT: Well, I -- the process is broken then, if that's the process. Does anyone else wish to be heard? Attorney Friedman, I think I saw you raise your hand. MR. FRIEDMAN: Yes, Your Honor. You know, for what it's worth, I do think 1104 may be read to have the *if/or*, and that the Court may have ultimate authority to approve any application, the same as any other professional.

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But I think more fundamentally, we are concerned. You know, there are issues. The Lady May will be returned. We had hoped that when the order was entered on June 15th, that, you know, that there would be a trustee in place to deal with that so PAX didn't have to. Our concern has always been, there's no funding for the estate. Perhaps the trustee, had it been appointed quickly, could have addressed that.

We now have a boat being returned, an inspection has to be conducted, there's still no money in the estate to deal with that. If PAX has to deal with that, obviously, it will have to file substantial contribution motion.

You know, the Court's order, which we respect and we reviewed was without prejudice, but in the absence of a trustee being able to take command, one who we would be -- you know, we -- let me take a step back.

We reached out to the trustee immediately to have discussions, the proposed trustee. You know, we were prepared to try to work cooperatively because we read what the Court's opinion said, noting that it was without prejudice.

But what -- the absence of a trustee causes prejudice. The estate is already being prejudiced. We think, as the Court knows, that PAX is by far the overwhelming creditor of this estate, and so it's being

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prejudiced by this delay. You know, we respect the Court's decision and that's why we didn't appeal because it was without prejudice, but if -- if sort of, this is the way the case is going, we're going to have to reinstitute our motion, you know, sooner rather than later, because we think that there is prejudice to PAX already by the delay in time. And you know, we'll be sort of guided accordingly. If there is a fast appointment, again, we will try in good faith to work cooperatively. But without a trustee in place, you know, there's a vacuum here. If PAX has to step up, there will be substantial contribution motions. PAX is already going to have to file one, I think, you know, to deal with the return of the boat. And we just want that to be clear that if there's no one else to pay for things -- you know, and PAX may have to address that and seek compensation from the estate on, you know, a very quick basis. Your Honor, this is an unfortunate circumstance with delay. THE COURT: Anyone else wish to be heard? MR. BALDIGA: Yes, Your Honor. William Baldiga. MR. GOLDMAN: I think -- 23 MR. BALDIGA: Go ahead, Irve. I'm sorry. MR. GOLDMAN: I think this temporary setback ought to be used as some sort of platform to revisit the --

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THE COURT: Mr. Baldiga, I can't hear you. You need to speak into your microphone a little bit more, please. I can't hear you. MR. GOLDMAN: It's Mr. Goldman, Your Honor. I'll -- THE COURT: Oh, okay, Mr. Goldman. I thought Mr. Baldiga was talking. Go ahead. MR. GOLDMAN: Yeah. I'll try to adjust my volume here. Your Honor. THE COURT: Go ahead. Let's see if we can hear you. MR. GOLDMAN: Is this any better? THE COURT: Let's -- go ahead and speak. MR. GOLDMAN: Yep. No, what I was going to say was, the -- or what I did try to say was that I don't think this temporary setback should be used as some sort of platform to revisit the dismissal motion. I expect that the U.S. Trustee is going to move with expedition. We will all work together, as we did with respect to this appointment and we will get a trustee in place. And I've already indicated to Mr. Friedman that the committee conceptually has no problem with a substantial contribution claim. We recognize that if they step up and, for example, have to pay for the inspection, that it should

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be a considered a substantial contribution. So I don't see that there are any issues right now that the Court needs to address, other than to try to get a handle on when the U.S. Trustee might expect to appoint -- THE COURT: Well, okay -- MR. GOLDMAN: -- the next trustee. THE COURT: -- I understand what you're saying, Attorney Goldman, but there's nothing in this record other than this hearing right now that has any information to anyone about why this trustee, who accepted the appointment and filed a docket -- document on this docket, accepting the appointment and saying that he has no -- had no -- he was disinterested and had no conflicts, and then come today -- he certainly -- he suddenly does. That's a problem. So the last -- who knows what's happened in the last five days of this case when there supposedly was a trustee in place. And I understand what you just said, but I think - - the Court is very concerned about it. I think it's -- I think it's -- you know, the -- it was issued on -- everybody kept saying, the Court has to act quickly and everybody knew that the -- a trustee was a possibility, but yet it took two weeks to get a trustee and then five days later the trustee whatever -- which by the way, I don't agree that the trustee isn't a trustee right now, but that's the position that's

being taken. Now we're five days after that and there's no trustee. And now how long is it going to take to get another trustee? And what happens if something happens during this time frame? I'm very disappointed in this whole process. It's not as if this hasn't been on the table since, oh, I think the middle of March and it's July 5th. 9 So I don't know -- you know, I'm not worried about substantial contribution and dismissal right now. I've heard all those issues. I know those issues. What I'm worried about is where is the trustee? I ordered it on June 15th, after everyone said I had to act quickly, which I did to the best of my ability and I didn't do it in 15 days, I did it in 17 days. Okay. Where is the trustee? So what's the next step, Attorney Claiborn? When is the U.S. Trustee's office going to have another trustee, which it is another trustee in my mind, whether or not you agree with that. And I'm not suggesting that this trustee has been -- this gentleman, who said he was disinterested and accepted the appointment, is not subject to some kind of claim someone could bring against him for these five days, or however many days he's the trustee until there's a successor trustee.

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The only thing that the code talks about in any kind of vacancy of a trustee is if a trustee dies or resigns. Neither one of those things apparently has happened. So what's the plan? MS. CLAIBORN: Your Honor, the U.S. Trustee, as soon as the order entered directing U.S. Trustee to appoint a Chapter 11 trustee, engaged in a appropriate request of the parties for input and solicitation as to appropriate and suitable candidates. Thereafter, the U.S. Trustee conducted a number of interviews over a number of days with many candidates. And as part of that interview process and that vetting process candidates were asked to submit and perform some conflict checks. As it turns out, the particular candidate selected ultimately uncovered something that was important enough for the U.S. Trustee to withdraw the selection. So the U.S. Trustee will now go to alternate candidates and will select an appropriate candidate as soon as possible. The U.S. Trustee is very aware that this is an urgent situation and the U.S. Trustee is taking it very seriously and all I can say is that we are acting as quickly as we can. I cannot promise a date, but we know that it is important. THE COURT: Well, I don't agree that you have the ability to withdraw, so that's -- I don't -- I've never seen

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a case. You show me a case where the U.S. Trustee's office has a -- MS. CLAIBORN: Your Honor -- THE COURT: -- ability to withdraw the appointment of a trustee. I don't -- MS. CLAIBORN: Your Honor, you may have -- Your Honor has done it before, actually, in the case of *Perilla*. THE COURT: When we had a successor trustee in place. There was a difference. MS. CLAIBORN: No, the original -- THE COURT: We had a successor -- MS. CLAIBORN: The original appointment of Steve Cohen. THE COURT: -- and the original trustee actually served as a trustee. There's a difference. A big difference. MS. CLAIBORN: Correct, but the original appointment of Trustee Cohen was done pursuant to the same process. THE COURT: The creditors all agreed in that case. That was -- that's a different situation and I think this process doesn't make any sense. Either you have -- you appoint someone, or you have a vote and you -- that's what the -- that's what the code sections require. That's what it says.

And you didn't have a vote. You appointed somebody, and the person said that they accepted the appointment and that they had no -- and they were disinterested. You can't then just say, withdraw. Why? Why shouldn't the person have to come in here and explain the problem? He accepted it. He's made statements under penalty of perjury that's in this docket. Why shouldn't he have to come in and explain why he's no longer qualified, or why shouldn't you have to file a motion to remove him, to explain everything to everyone, because if we didn't have this hearing, there would be no explanation that anyone would understand as to why this trustee is not serving in this case according to the United States Trustee's office. So why shouldn't you have to file the -- MS. CLAIBORN: Your Honor, can I -- THE COURT: -- why -- you know, you cite to Rule 2007. Well, look at section of the Bankruptcy Code 324 that says removal of trustee or examiner. This gentleman already accepted the appointment under an order in which he was -- that this Court directed the appointment of that Chapter 11 trustee. So according to you then every time there's a Chapter 11 trustee appointed, we're going to have to wait

another -- if you didn't do an expedited hearing, when were we going to have the hearing? So it could be 30 days. How does that possibly make sense? When a court rules that a Chapter 11 trustee is appointed, and then the U.S. Trustee's office appoints one, and then the U.S. Trustee's office can say, no, that's all right, I'm going to take that back. I don't think that's how it works and that's not the way it should work. If there's a problem, you file a motion. You say that -- I'm -- we're removing him because he's no longer qualified, because he discovered something that he didn't discover at the time and we're moving with all due speed to get a successor trustee appointed. But you don't get to -- he doesn't get to just walk away as if he was -- never accepted the appointment, and that's essentially what you're allowing him to do. You're allowing him to absolve himself of any liability that he -- that he incurred when he agreed to be appointed as the trustee. MS. CLAIBORN: Your Honor, it's the U.S. Trustee's position that until the appointment is approved by the Court, the U.S. -- the Chapter 11 trustee is not installed as the Chapter 11 trustee, because that -- THE COURT: So is that going to be true in all Chapter 7 cases --

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MS. CLAIBORN: -- is part of a process -- THE COURT: -- and Chapter 13 cases as well, because all the same sections of the code apply with regard to the qualifications of a trustee. And in Chapter 7 they're supposed to vote on the trustee at 341 meetings, but that doesn't happen, because that's what the code says. MS. CLAIBORN: Only if there is an election process -- THE COURT: -- that a trustee is an interim trustee until after the 341 meeting where the creditors are supposed to elect the trustee. That doesn't happen. MS. CLAIBORN: Creditors have the right to -- THE COURT: Same as Chapter 13 trustees. MS. CLAIBORN: -- ask the Court to have an election process. That has not been done in this case. THE COURT: No, I'm not asking about this case. MS. CLAIBORN: That process -- THE COURT: I'm saying, you don't follow the process in the Chapter 7 and 13 cases where the trustee is supposed to only be an interim trustee and then be elected by the creditors at a -- at 341 meeting in Chapter 7 and 13. MS. CLAIBORN: Correct. THE COURT: So why are we doing that? It makes absolutely no sense to say the trustee isn't the trustee until after there's an order appointing him, approving the

| | 25 | |----|------------------------------------------------------------------| | 1 | appointment, when I already ordered that he be appointed. | | 2 | The Court doesn't -- why am I approving anything | | 3 | you do?<br>It doesn't matter.<br>I already said it's your office | | 4 | that's responsible for the appointment, not the Court. | | 5 | And those sections that you're reading those deal | | 6 | with different issues than when there is a court order | | 7 | deciding that a trustee should be appointed.<br>So I mean, | | 8 | that's fine.<br>I understand your position, I don't agree with | | 9 | it. | | 10 | So what's the plan?<br>So are we going to have | | 11 | another hearing tomorrow or the next day, because I'm going | | 12 | to have one.<br>I want to know when this trustee is going to | | 13 | be appointed.<br>And it's going to be a successor trustee. | | 14 | That -- I mean, because by the way, the code and the rules | | 15 | talk about successor trustees. | | 16 | This gentleman can't escape liability just because | | 17 | he's now found that he's got a conflict.<br>I mean, we deal | | 18 | with this all the time in debtor's counselor and other | | 19 | professionals, and you -- and the argument is, well, they | | 20 | said they didn't have a conflict, but now they do. | | 21 | Well, then there should be a ramification for | | 22 | that.<br>There should be some responsibility for that, and | | 23 | there shouldn't be a Chapter 11 debtor who, you know, since | | 24 | June 15, wasn't -- isn't supposed to be in control of the | | 25 | estate, but he still is apparently.<br>And he's still going to |

| | 26 | |----|----------------------------------------------------------------| | 1 | be until a new trustee is appointed. | | 2 | So I don't agree with you that Mr. Whitely doesn't | | 3 | have any liability in this case, because he does from the | | 4 | Court's perspective. | | 5 | He accepted the appointment and he said he had no | | 6 | conflict of interest, and no -- and he was a disinterested | | 7 | party. | | 8 | And if he later discovers there's a problem, then | | 9 | you move to remove him under the code, under Section 342 of | | 10 | -- 24 of the code.<br>That's what you do.<br>That's how it | | 11 | should be handled, not a withdrawal of an application.<br>He's | | 12 | already accepted the position. | | 13 | So what time are we having a hearing tomorrow so I | | 14 | can find out when the successor trustee is going to be | | 15 | available? | | 16 | MS. CLAIBORN:<br>Your Honor, with all due respect, I | | 17 | may not have an answer for the Court tomorrow as to whether | | 18 | or not there is a time frame during which I can tell the | | 19 | Court that a Chapter 11 trustee will be installed. | | 20 | All I can tell the Court is that the U.S. Trustee | | 21 | is actively working on this situation, we are actively | | 22 | communicating with people and the process will be done as | | 23 | soon as it is possible to do so. | | 24 | THE COURT:<br>Attorney Friedman.<br>Attorney Goldman. | | 25 | MR. FRIEDMAN:<br>Your Honor. |

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THE COURT: Attorney Mayhew. MR. FRIEDMAN: Okay. I'm sorry. THE COURT: Have you -- have your clients identified anyone that they would want to act as the Chapter 11 trustee in this case? MR. FRIEDMAN: Your Honor, we -- it's Peter Friedman. We have consulted with the U.S. Trustee and made a recommendation. We have also consulted with other creditors and, you know -- and indicated other names of candidates who would be acceptable to our clients. MR. GOLDMAN: Your Honor, on behalf of the Committee, we did submit two names for consideration for the trusteeship (indiscernible) with PAX and the U.S. Trustee concerning the preference. So we've gone through that process. MS. MAYHEW: And on behalf of the creditors, Your Honor, we also consulted with the United States Trustee's office and joined in the recommendation of the creditor's committee. THE COURT: Okay. Well, I'm going to order -- UNIDENTIFIED SPEAKER: Your Honor -- THE COURT: -- you all to -- UNIDENTIFIED SPEAKER: -- Your Honor, but -- THE COURT: -- meet tomorrow, and I want to know

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where we are on the trustee by first thing Thursday morning. This is unacceptable. This is unacceptable. This is now a situation where this debtor in possession has been in control of this estate for a period of now more than 20 days -- 21 days since the order appointing the trustee, which didn't come from thin air, was entered. And I'm not going to allow this to happen again. If I have to order you to have a vote, you'll have to have a vote. This is just unacceptable, and I'm just -- I will decide at the end of the day how -- where this all comes out. But if I find out that something happened during these five days, I'm not going to be happy about it. Or these six days, or these seven days, or however many days it takes to get a trustee in place. So all the creditors, you need to set up a call with Attorney Claiborn and Attorney Harrington, if you need to have Attorney Harrington involved, the U.S. Trustee involved. But this -- there has to be a trustee appointed in this case. And this form over substance process -- so every single time there's a Chapter 11 trustee appointed, we have to have an emergency hearing to enter another order to approve -- that doesn't make any sense. If someone doesn't like the trustee, they can move

to remove him. It's just form over substance. Just complete form over substance. The job of th U.S. Trustee's office is to appoint the trustee. You did that. He has a conflict, then he should have to be removed and disclose the conduct -- the conflict to this Court. The fact that none of this as disclosed and none of this would happen if this hearing didn't go forward, is unacceptable to this Court and it should be to all of you as well. So what time are you going -- UNIDENTIFIED SPEAKER: Your Honor -- THE COURT: -- to meet and who's going to report back to the Court -- UNIDENTIFIED SPEAKER: Your Honor, that -- THE COURT: -- tomorrow on when a Chapter 11 trustee is going to be appointed? I'll just make it easier for you. We're going to have a hearing tomorrow at 3:00 p.m. and it will be virtual. And you will all tell me where things stand on the appointment of a Chapter 11 trustee. And I expect the U.S. Trustee's office to make themselves available to all the creditors in this case and to make sure that this appointment happens very, very, very soon, because where we stand now is just very unfortunate. Does anyone have any questions?

MR. BALDIGA: Your Honor, it's William Baldiga. Yes. Yes. THE COURT: Go ahead, Attorney Baldiga. MR. BALDIGA: It's Mr. Baldiga. Can you hear me? Yes, thank you. I was inferring initially from your comments that the debtor would be able to participate in those conversations, as generally the case. The U.S. Trustee, as appropriate, did reach out to us immediately at the entry of the Court's order. We responded in kind as to thoughts as to a trustee, which I understand is customary. We would expect to continue in that process and I just didn't want your comments to be taken to exclude us from that. THE COURT: Okay. I understand. MR. BALDIGA: Second -- okay. Second, I do inquire as to what information has occurred or has been brought forth. I understand from Ms. Claiborn that there may be an assertion of a privilege with which I'm just not familiar, but I do make that inquiry as to what happened. THE COURT: Are you asking her to tell you this on the record right now, Attorney Baldiga? MR. BALDIGA: I would respect that -- if she preferred to that privately, I would respect that. But I am making that request. I -- I'm not --

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THE COURT: Well, I'm not sure the Court would respect that. If there -- I want to know why this person is -- is not -- no longer qualified. And if you have to file it under seal, file it under seal, but I think it's unacceptable to have proceeded this way and to withdraw the appointment and not disclose to anyone what the reason is. And as I have said, and I will say again, Mr. Whitely accepted that appointment and filed documents under penalty of perjury in this case that he was a disinterested person. So I -- you know, I don't agree that this form over substance order needs to have entered for him to have -- he's already posted a bond. So are you saying that the bonding company is going to say that the bond doesn't go into effect until there's an order entered? Well, that's interesting, because that doesn't happen in Chapter 7 and Chapter 13 cases. MS. CLAIBORN: Your Honor, to my knowledge Mr. Whitely has not posted a bond. THE COURT: Okay. All right. What time did I say we're going to have this hearing tomorrow? THE CLERK: 3:00. THE COURT: 3:00 p.m. All right. So you can all reach out to the courtroom deputy and obtain the information for the hearing and I want to hear what the progress is and

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I want to know how long it's going to take, because it's been 20 days since that order that everyone insisted needed to enter right away, and it did, and we still don't have a trustee. Anyone else have any questions? (No audible response) THE COURT: Okay. That concludes today's hearing. Thank you. MS. MAYHEW: Thank you. THE CLERK: Court is adjourned. (Proceedings concluded at 4:34 p.m.) I, CHRISTINE FIORE, court-approved transcriber and certified electronic reporter and transcriber, certify that the foregoing is a correct transcript from the official electronic sound recording of the proceedings in the above- entitled matter. 19 July 13, 2022 20 Christine Fiore, CERT Transcriber