Tensions in Rudy Giuliani’s bankruptcy case are coming to a head, with his creditors hoping for the drastic remedy of having a third party take control of the former New York City mayor’s finances.
Since Giuliani filed for bankruptcy protection, spurred by a $148 million defamation verdict, his creditors have accused him of hiding assets and a coffee deal, spending egregiously and failing to timely file required paperwork.
They have now had enough. On Monday, lawyers representing Giuliani’s creditors will return to bankruptcy court in New York, hoping to persuade a judge that the time has come for a trustee to step in.
“Simply put, Mr. Giuliani and his bankruptcy case have reached an impasse,” the unsecured creditors committee wrote in their motion.
In December, Giuliani hastily filed for Chapter 11 bankruptcy after a jury ordered him to pay two Georgia election workers $148 million for defaming them by spreading a baseless conspiracy on behalf of former President Trump in 2020 that they were involved in mass election fraud. He has vowed to appeal.
Bankruptcy automatically froze the poll workers’ efforts to collect the massive sum. And by filing for Chapter 11 — as opposed to Chapter 7, a more common type of individual bankruptcy that would lead to liquidation — Giuliani has remained in control of his assets, for now.
“Mr. Giuliani went into Chapter 11 because he wanted to retain control. This is the key to Mr. Giuliani’s bankruptcy,” said Daniel Gielchinsky, a partner at DGIM Law who specializes in bankruptcy law.
That soon could change as the creditors hope to take the reins. For months, they have expressed concerns about Giuliani’s genuineness in filing for bankruptcy, casting it as a delay tactic. The election workers believe federal law prevents Giuliani from discharging their nine-figure award in bankruptcy.
U.S. Bankruptcy Judge Sean Lane, who oversees the case, expressed frustration at a hearing last month.
“I am disturbed about the status of this case. The question is, as it always is in bankruptcy court, where do we go from here?” Lane said.
In a scorching 55-page motion filed days later, Giuliani’s creditors told Lane that he should take the rare step of appointing an independent trustee, arguing Giuliani has shown a preference for “theatrics over progress.”
“His creditors do not need to accept this as their plight, and the Committee refuses to do so. Accordingly, the time has come for the immediate appointment of a chapter 11 trustee to take control of the Debtor’s assets and financial affairs, including his wholly-owned businesses,” the motion reads.
If the judge agrees, the trustee could look to sell assets or prevent Giuliani from diverting assets to his companies, which have not filed for bankruptcy.
Though Gielchinsky said he thinks the motion has merit, he added that the judge may wait so Giuliani can first propose a plan of reorganization to his creditors, which must be confirmed for Giuliani to emerge from bankruptcy. Court filings indicate Giuliani is seeking a third-party to fund his plan “so far without success.”
“The big question the judge is going to have to deal with at the hearing of this motion to convert is, do I do this now, or do I just wait and give you, essentially, the rope to hang yourself with when you propose a plan of reorganization that everybody rejects,” Gielchinsky said.
Since Giuliani filed for bankruptcy, his finances have spilled out into public view.
He has disclosed $10.6 million in assets, including a Mercedez-Benz, two IRAs and three Yankee World Series rings. But the bulk comprises his homes in New York and Florida, and questions have swirled over whether Giuliani will sell them.
Creditors previously sought to compel Giuliani to sell his $3.5 million Palm Beach, Fla., condo. The judge did not order Giuliani to do so, but at a hearing, Lane noted it was a “warning shot across the bow.”
“The debtor can succeed in fending off this motion only to be faced with far more draconian requests for relief by the committee in the future,” Lane said at the time.
Last week, Lane authorized Giuliani’s application to retain a broker to sell his New York apartment, which he has valued at $5.6 million.
“The bankruptcy bought him six months, it’s true,” said Eric Snyder, a partner at Wilk Auslander who chairs the law firm’s bankruptcy department. “But what did it really buy him, if he loses them anyway? Except now he’s in a legal proceeding that’s a lot more intrusive.”
Giuliani’s income and spending have also come under scrutiny, including credit card statements showing he spent thousands to cover costs for his businesses as well as pay the credit card bill of Maria Ryan, one of his employees and Giuliani’s reported girlfriend.
Giuliani’s lawyers deny any wrongdoing, saying he transfers personal funds when business revenue is insufficient to cover his company’s expenses.
As for his income, creditors have complained that many of Giuliani’s revenue streams flow to his company, which has not itself filed for bankruptcy, rather than a personal account.
The former mayor had indicated he lived off IRA withdrawals and income comprising social security payments and his radio show. But Giuliani’s network suspended his show last month after his Arizona indictment for his post-election efforts.
He is now starting a new venture called “Rudy Coffee,” with pre-orders set to ship out this month, according to the store’s website. But that deal, too, has caused a ruckus.
Giuliani is set to receive 80 percent of net profits, court filings show, but creditors say the funds will similarly go to his company. They further claim Giuliani’s own lawyer was kept in the dark until the deal went public.
“Some of them are not real grounds to put in a trustee,” said Snyder. “But the paying the bills of third parties, the not disclosing the coffee contract — those are real issues that might constitute what they call cause to put into trustee.”
Giuliani should find a paying job that will help fund his plan of reorganization, creditors said, instead of “kickbacks to his cronies and a personal slush fund,” indicating they plan to investigate whether Giuliani is “liable for bankruptcy crimes.”
In court papers filed on Monday, his lawyers said the comment was a “stretch of facts,” also noting Giuliani has “possible” lung disease after spending time at Ground Zero following 9/11.
“Maybe the Committee also has a suggestion on who would employ an 80 year old disbarred attorney,” Giuliani’s lawyers wrote.
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