The Adversary Process – Rudy Giuliani’s Chapter 11 Bankruptcy

Rudy Giuliani, the former mayor of New York, a.k.a. “America’s Mayor,” filed for Chapter 11 bankruptcy due to a $148 million defamation judgment against him by Ruby Freeman and Wandrea’ ArShaye “Shaye” Moss, two former Georgia election workers. Because the judgment is based on defamation of character, it will likely be argued if that judgment can be eliminated in bankruptcy via the adversary process.

That Chapter 11 bankruptcy was on the horizon for Giuliani comes as no surprise, but from the beginning, I knew the issue would be if the defamation judgment could be included in the bankruptcy. Remember, not all debts can be discharged in bankruptcy. You can read about non-dischargeable debts via this link.

Now, that issue is before the court. From day one, it’s been my legal opinion, and I have made it clear in my bankruptcy classes that Giuliani could not wipe out that judgment with bankruptcy. But we will know soon enough.

The Adversary Proceeding, Chapter 11 Bankruptcy, and Rudy Giuliani

What is an adversary proceeding? I like to tell my students it’s a contested or litigated bankruptcy case. It is no different from a litigated divorce case or any other civil matter.

In Giuliani’s case, I didn’t even know that when I said he could not escape the defamation judgment with bankruptcy, Giuliani and the attorneys for Moss and Freeman signed a stipulation. In that stipulation or agreement, which was written into the final judgment, is the following language:

It is hereby DECLARED pursuant to 28 U.S.C. § 2201(a), as between Plaintiffs and Defendant: that Defendant’s conduct was intentional, malicious, wanton, and willful, such that Plaintiffs are entitled to punitive damages.

Now, go back to my blog post listed above. That’s exactly what I wrote when it comes to the issue of which debts can be discharged in bankruptcy and which cannot. The twist here is that Giuliani admitted that his acts were intentional, malicious, wanton, and willful. I honestly have no idea why that was admitted other than that it was a substantial legal mistake. Perry Mason is rolling in his grave.

If I had to guess, Giuliani and his legal team figured they had a losing case, and Giuliani couldn’t afford attorney’s fees on a lengthy litigated case. Besides, the attorney’s fees would have been wiped out in the bankruptcy as well, so I can’t imagine the lawyers would have stuck around much longer.

In addition, because of the stipulation, Giuliani wouldn’t be able to appeal the judgment. So, he most likely hoped for a minimal judgment that he could afford to pay off or roll the dice and file for bankruptcy. Again, this goes back to the stipulation, which makes no sense unless Giuliani never even consulted with a bankruptcy lawyer until it was too late. He should have just filed for bankruptcy once the case was filed.

Even stranger is that a judgment was entered against Giuliani by default, which means he never even filed a response to the defamation complaint. That meant the only issue was how much Moss and Freeman should be compensated. I explain the lawsuit process in this blog post.

What You Need to Know About the Adversary Process

The adversary process is not part of the bankruptcy but is related to it. So, the adversary process is a separate lawsuit. One example of how it is a separate proceeding is that the standard retainer agreement with a bankruptcy lawyer makes it clear that a 2004 examination or adversary proceeding requires additional fees. Even in the bankruptcy petition, where attorneys confirm their compensation for attorney’s fees, the section on adversary proceedings states that representation excludes adversary proceedings.

Another example of when adversary proceedings are used is with student loans, which are nondischargeable in bankruptcy. While student loan debt is listed in the bankruptcy petition, that doesn’t eliminate the debt. Instead, the adversary proceeding is filed to determine what amount, if any, of student loan debt can be eliminated with bankruptcy. Whether student loans can be discharged in bankruptcy is based on the Brunner test. The Brunner test will be discussed in future blog posts.

The adversary process is guided by Part VII of the Federal Rules on Bankruptcy Procedure, which is almost identical to the Federal Rules of Civil Procedure. Like any civil case, a complaint is filed and served upon the defendant, who has to file a response and usually files a motion to dismiss as well. Assuming the case isn’t dismissed, the parties proceed with the discovery process, which is exchanging relevant information. If a settlement isn’t reached along the way or at mediation, the final step is an evidentiary hearing, similar to a trial.

Guiliani’s adversary proceeding was initiated recently, so it may be a while before the court issues a ruling on the dischargeability of the judgment.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.

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Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.

This post was updated on November 10, 2024.