661 B.R. 493
Bankr. S.D.N.Y.2024Background
- Rudolph W. Giuliani filed for Chapter 11 bankruptcy after a $148 million defamation judgment in favor of Ruby Freeman and Wandrea’ ArShaye Moss regarding statements made during the 2020 election.
- Giuliani's conduct in bankruptcy was marked by substantial failures of financial disclosure, incomplete and untimely reports, and non-production of required documents by himself and affiliated business entities.
- The Official Committee of Unsecured Creditors (the Committee) moved for appointment of a Chapter 11 trustee, while Giuliani sought to convert the case to Chapter 7, and later consented to a dismissal with a one-year bar on refiling.
- Both the Committee and Freeman Plaintiffs opposed Giuliani’s conversion motion but advocated different outcomes: the Committee preferred a trustee, Freeman Plaintiffs favored dismissal.
- The court found "cause" (under § 1112(b)) due to Giuliani’s reporting failures, lack of transparency, self-dealing concerns, and risks to creditor recovery if the case continued in bankruptcy.
- Ultimately, the court dismissed the case with prejudice and imposed a one-year bar to refiling, finding that dismissal better protected creditors’ interests than conversion or trustee appointment.
Issues
| Issue | Plaintiff's Argument (Freeman Plaintiffs) | Defendant's Argument (Giuliani) | Held |
|---|---|---|---|
| Does debtor have an absolute right to convert Ch. 11 to Ch. 7? | Dismissal preferable; opposes conversion | Sought conversion as a matter of right/alternative to dismissal | No absolute right; conversion not warranted |
| Whether cause exists for dismissal/conversion (7 1112(b)) | Cites extensive failures in reporting and compliance | Admits imperfect compliance; blames lack of accountant | Cause found; persistent reporting failures justify action |
| Appropriate remedy: dismissal, conversion, or trustee | Dismissal better for creditors; one-year bar sought | Consented to dismissal or conversion; opposed trustee | Dismissal with prejudice and one-year bar is best |
| Impact on creditors and estate value | Dismissal lets creditors act; prevents admin. expense waste | Feared asset erosion with trustee or conversion | Dismissal favored to avoid further value loss, delays |
Key Cases Cited
- In re Adler, 329 B.R. 406 (Bankr. S.D.N.Y. 2005) (no absolute right to convert from Chapter 11 to Chapter 7, especially in bad faith)
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007) (no absolute right to convert between bankruptcy chapters if bad faith exists)
- Kearney v. Unsecured Creditors Comm. (In re Kearney), 625 B.R. 83 (10th Cir. 2021) (agreeing with Adler/Marrama: conversion not a debtor's absolute right)