'Reasons to be very concerned': Bankruptcy judge ends hearing with ominous words for Giuliani, as $148 million defamation judgment appeal efforts get chilly reception

U.S. Bankruptcy Judge Sean Lane (Southern District of New York court photo); Former Mayor of New York Rudy Giuliani tosses back a cap as he signs autographs at a campaign event for Republican presidential candidate former President Donald Trump in January (AP Photo/Matt Rourke).

Rudy Giuliani, through an attorney, made his best pitch at a hearing on Monday to convince his bankruptcy judge not to side with creditors in their attempt to appoint a watchdog that would oversee the former NYC mayor’s finances and companies. Along the way, Giuliani’s team once again stressed the need to be able to appeal the $148 million default defamation judgment that led him to file for Chapter 11 bankruptcy, and those arguments received a chilly reception from the judge.

U.S. Bankruptcy Judge Sean Lane first listened closely as attorneys with Akin Gump Strauss Hauer & Feld LLP argued it was necessary to “immediately” appoint a trustee that would assume control over Giuliani’s finances and “all day-to-day operations” of his businesses. Creditors’ lawyers also demanded that Giuliani be forced to file monthly operating reports on time, citing a “ disturbing pattern ” of leaving them in the dark on the details of his income.

The committee lawyers represent Dominion Voting Systems , defamed Georgia election worker Shaye Moss, and former Giuliani employee Noelle Dunphy , who has sued Giuliani accusing him of sexual assault and fostering a hostile work environment , allegations that Giuliani has denied.

In recent days, the Official Committee of Unsecured Creditors has argued that the “ time has come ” for a trustee to step in who would have the power to “manage the affairs of the debtor and make all decisions” about Giuliani’s property and to “propose a plan of reorganization” in the Chapter 11 bankruptcy proceedings he initiated following the $148 million judgment in the suit brought by Moss and her mother Ruby Freeman.

The attorneys for the committee even floated the possibility that Giuliani engaged in “bankruptcy crimes” by operating through the “alter ego LLC” Giuliani Communications, claiming he may be “funneling funds that belong to his creditors to his business and using his business as a personal piggy bank, which is fraudulent.”

To date, creditors have framed the appointment of a trustee as a no-brainer on grounds of Giuliani’s alleged “dishonesty,” “incompetence,” “gross mismanagement,” “inadequate record-keeping and reporting,” “inappropriate relations between the Debtor and his wholly-owned businesses,” “conflicts of interest,” and “breach of fiduciary duty.”

Through his attorneys, Giuliani even more recently opposed the appointment of a trustee, asserting that he “does not intend to hide assets or mislead anyone” and denying the “bankruptcy crimes” allegations, saying that “operating through an alter ego LLC is usual and customary and is not fraud or deceit[.]”

“His gross income for his services are deposited into the entity” Giuliani Communications and is used to pay his employees and business expenses before the net funds are paid to him personally, Giuliani’s lawyers replied, calling claims of “bankruptcy fraud” a “stretch of facts and not supported by the common sense observation of the facts.”

“There is nothing new or unusual about the manner in which the Debtor operates,” Giuliani’s team has maintained.

The judge, who once warned that creditors’ requests would become increasingly “ draconian ,” also heard Monday from Rachel Strickland, the attorney for the Freeman plaintiffs.

Strickland began by saying that “when someone shows who they are, believe them,” and lamented that Lane has given Giuliani some breaks .

“He’s not a doddering 80-year-old,” Strickland said, instead describing Giuliani as a “shrewd” operator.

The attorney, repeating claims that Giuliani has been “funneling money” to Giuliani Communications, said it was alarming that Giuliani explained late filing incomplete or inaccurate operating reports in recent months by blaming that on a bookkeeper being ill and an accountant quitting .

“Those are huge red flags,” Strickland said, before highlighting additional problems.

Noting that Giuliani in May agreed to a permanent injunction barring him from repeating defamatory statements about Moss and Freeman, Strickland pointed to a June 3 post on X that the lawyer said was clearly about her clients, even though the post didn’t name Moss and Freeman.

Giuliani’s June 3 post which came up during June 17, 2024, bankruptcy hearing.

“The 2020 election was stolen. We have sworn affidavits, countless testimonials, eyewitness accounts, and irrefutable evidence showing examples of voter fraud, including video of ballots being run through counting machines two and three times,” the Giuliani post said. “I refuse to be silenced.”

Strickland said that the “ballots being run through counting machines two and three times” statement clearly references Giuliani’s false claims about Moss and Freeman. Strickland said that contrary to the content of Giuliani’s post, agreeing to an injunction means he has “knowledge of a legal obligation to be silent.”

“He just won’t follow the law,” the lawyer said. “The creditors are unanimous. We all need this relief.”

When it was his turn to speak, Giuliani’s attorney Gary Fischoff reiterated his position that his client’s operating through Giuliani Communications LLC is “nothing unusual.”

Lane interjected to say that if one does operation through such an LLC, “then you have to provide information” in detail.

“It can’t be on a trust me basis,” the judge said, pressing Fischoff on whether he has received details from his client on the funds going into Giuliani Communications.

“No, not yet,” Fischoff replied.

“That’s an unfortunate statement for you to have to make,” Lane commented, before wondering how anyone can say “with any confidence” that what Giuliani’s team is saying is accurate.

“Unfortunately, it is taking the debtor some time,” Fischoff explained, claiming Giuliani has been “improving his reporting” but has been “slow to adapt.”

It was at this point of the hearing that the judge noted the “test” for appointing a trustee does “not necessarily” hinge on “bad intent” on the part of the debtor.

“Gross mismanagement,” the judge said, could be cause for such an appointment.

Notably, Lane has said before that he is “disturbed about the status of this case” and criticized Giuliani’s “troubling attitude vis-à-vis the law and the court system.”

Fischoff replied Monday that appointing a trustee “is not in the best interest of creditors,” despite their unequivocal request for one.

From here, Giuliani’s lawyer shifted his focus to the Freeman litigation and the need for the judge to allow an appeal.

“There’s 150 million reasons why the Freeman case should be appealed,” Fischoff said, asserting that “we do have an arguable basis” for the same.

Lane responded that appealing the Freeman judgment was not the point of the present hearing.

“I denied the motion making it very clear that the reason for the denial, among other things, was my concern that the debtor views the [bankruptcy] case solely about appealing that litigation,” the judge said.

Fischoff, revealing that Giuliani just received a contract for a five-day-a-week internet or radio show that would yield $180,000 in additional income, again insisted that the Freeman judgment “needs to be addressed.”

The judge responded by steering the discussion back to the appointment of the trustee and remarked that it was “a troubling fact” that Giuliani had failed to obtain a bookkeeper and accountant.

“It is exceedingly rare for such an event, that kind of problem to exist in a case,” Lane said.

The judge also talked about the Giuliani post on X that Freeman’s lawyer complained of, saying “let’s not be clever” when Fischoff attempted to make the case that the post wasn’t necessarily about Freeman and Moss.

“That doesn’t seem plausible to me,” Lane said, adding that he thinks it would be “impossible for anyone familiar with that issue” to not connect those dots. He expressed concern about additional “liability” being created during the course of the case.

“The trustee may not change that,” Fischoff said, with a degree of resignation in his tone.

“That’s a fair point,” Lane replied.

Nonetheless, as Fischoff promised that a report on financials for Giuliani Communications would be coming, the attorney asked the judge to set an evidentiary hearing.

“Is there a request to put your client on the stand?” Lane asked, then told the debtor’s lawyer that he needs more than a “general statement” — that is, “something more specific” — to set such a hearing.

“I think, perhaps, the debtor does need to take the stand in connection with this matter,” Fischoff floated.

Pressed some more, the lawyer said he had “nothing further to say” before trying to get the judge’s permission to have Ken Caruso , Giuliani’s longtime friend who has tried to help with a Freeman appeal, jump in and talk.

“I’m not here to reargue the motion to lift the stay,” Lane warned, adding: “I’m struggling to understand how our conversation about this is relevant.”

The Caruso discussion ended there and the hearing stopped for a 10-minute break shortly thereafter.

After the break, as the conversation shifted in earnest to discovery issues, additional concerns were raised about attorneys making appearances on Giuliani’s behalf post-bankruptcy both in his Georgia RICO criminal case and in a New Hampshire lawsuit against President Joe Biden — without providing any details about the nature of these attorneys’ retainments.

“All of these things that are going on here are extremely problematic,” said Andrea Schwartz, an attorney with the U.S. Trustee’s Office.

Giuliani was also said to be exploring having the law firm Aidala, Bertuna & Kamins represent him in the Georgia case.

Having taken all of the arguments in but without immediately ruling, Lane commented that the “record in this case suggests that I should be extremely concerned” about Giuliani’s failure to comply with court orders. The judge also used the words “highly problematic.”

“There are reasons to be very concerned here. I’m not going to beat a dead horse,” the judge said in closing, before telling the lawyers he’d see them again on July 10.

Editor’s note: the spelling of the word is doddering, not dottering.

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