[00:00:01] Speaker 00:
Good morning, Your Honors.

[00:00:02] Speaker 00:
May it please the court?

[00:00:03] Speaker 00:
I'm John Fries, and I represent the appellants in this bankruptcy case.

[00:00:07] Speaker 00:
And we request that the court's order granting partial summary judgment be reversed so that this matter can be tried on the merits.

[00:00:17] Speaker 00:
The bankruptcy court initially ruled that equitable ownership alone was sufficient to deem these assets as property of the estate.

[00:00:28] Speaker 00:
The bankruptcy court

[00:00:30] Speaker 00:
initially found that there was no alter ego, and that alter ego was not necessary.

[00:00:37] Speaker 00:
And then the bankruptcy court cited to three cases, four cases actually, Moses, Nelson, McCoughlin, and the Askenazi case, all for the proposition that equitable ownership is sufficient.

[00:00:53] Speaker 00:
And in all those cases, the debtor had

[00:00:57] Speaker 00:
ownership on paper.

[00:01:00] Speaker 00:
It was actually reflected in the trust documents where they had a right to receive income or some other ownership.

[00:01:08] Speaker 00:
In this case, the debtor had no ownership

[00:01:12] Speaker 00:
or rights in the trust documents.

[00:01:15] Speaker 00:
He was not a beneficiary.

[00:01:17] Speaker 03:
No, I just want to continue on.

[00:01:18] Speaker 03:
But the bankruptcy judge ended up concluding there was alter ego, correct?

[00:01:23] Speaker 00:
That's right.

[00:01:23] Speaker 03:
Yeah, yeah.

[00:01:24] Speaker 04:
That's right.

[00:01:25] Speaker 04:
Is there any factual dispute that Mr. Slotkin controlled these trusts?

[00:01:31] Speaker 00:
There is no factual dispute that he controlled them.

[00:01:35] Speaker 04:
Is there any factual dispute that he at least commingled some of the funds, his personal, in these trusts?

[00:01:41] Speaker 00:
Some, the extent of the commingling is why we believe there should be a trial because the extent of the commingling is actually quite small and there were

[00:01:52] Speaker 00:
there were disputed issues.

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The trustee had an accountant that did an analysis on the co-mingling and concluded that, well, he, in 2018, 150,000 was paid from the entities to the debtor's credit card.

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And then in 2019, it was 121,000.

[00:02:12] Speaker 00:
And there was really no analysis of what these credit card charges were.

[00:02:18] Speaker 00:
In opposition to that, my clients submitted evidence that actually a very small portion of the credit card charges were the personal expenses of Mr. Slotkin.

[00:02:31] Speaker 00:
The vast majority of them were business expenses of the entities like insurance, utilities, maintenance, repairs, Home Depot, and that was a substantial majority of those expenses.

[00:02:48] Speaker 00:
Another large portion of the expenses were the two trust beneficiaries, Savannah Slotkin and Nicolette, some of their personal expenses.

[00:03:00] Speaker 01:
Let me ask you this, because the Bankruptcy Court cited 13 factors establishing alter ego, equitable ownership being just 113.

[00:03:13] Speaker 01:
So while there may be disputes as to exactly what the amounts were,

[00:03:18] Speaker 01:
Can you point to any of the 13 factors and say this is a factual dispute?

[00:03:22] Speaker 01:
Because the factors are pretty generalized, right?

[00:03:26] Speaker 01:
A lack of observation of any formality, segregation of bank records, failure to segregate funds, same employees,

[00:03:38] Speaker 01:
the fact that trusts and the trust and the slot can all use the same attorneys paid for by rental properties.

[00:03:44] Speaker 01:
Those are very generalized factors.

[00:03:46] Speaker 01:
So can you point me to one of the 13 factors that are disputed such that trial may be warranted?

[00:03:52] Speaker 00:
Yes, there's actually several of them.

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First is the initial capitalization.

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These trusts and entities were set up a long time ago and they were well capitalized.

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The debtor has not

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put any of his own money into these entities for a very long time.

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And that's in contrast to the Schwarzkopf case where

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the debtor actually put money into the trust shortly before.

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So that's a big distinction.

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There's also a pretty significant issue regarding the formalities.

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The formalities of each entity were followed very strictly.

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There were operating agreements.

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There were minutes stock was issued.

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So that was done

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very carefully and properly.

[00:04:46] Speaker 03:
You know, I start out from the proposition that these are, to my mind, as a non-trust person, somewhat unusual trust.

[00:04:53] Speaker 03:
They're so-called defective grantor trusts.

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It provides relief with respect to estate tax and gift tax, but income of the trust is taxed to him.

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I mean, they treat this really for income tax purposes.

[00:05:08] Speaker 03:
Those were his.

[00:05:10] Speaker 03:
Let me ask you this.

[00:05:11] Speaker 03:
He answers question number 23 in the Statement of Financial Affairs.

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The question is, do you hold or control any property that someone else owns, include any property you borrowed from, storing for, holding trust for someone?

[00:05:24] Speaker 03:
He answers, no.

[00:05:25] Speaker 03:
Is that a truthful answer?

[00:05:27] Speaker 00:
I don't think it was a truthful answer.

[00:05:29] Speaker 03:
Yeah, I know.

[00:05:29] Speaker 00:
In other words, he lied.

[00:05:31] Speaker 00:
Well, I don't know if he lied or he didn't understand, but yes, I mean, he held these assets in trust, and that was not a correct answer.

[00:05:41] Speaker 03:
Yeah.

[00:05:42] Speaker 03:
You argue also for collateral estoppel coming out of the divorce proceedings.

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Was there privity such that collateral estoppel exists?

[00:05:51] Speaker 00:
I think that there is privity.

[00:05:54] Speaker 03:
Privity, collateral estoppel.

[00:05:56] Speaker 03:
What kind of privity are we talking about then?

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Who's the privity between?

[00:06:00] Speaker 00:
Abigail Slotkin, the spouse, and then the Chapter 7 trustee who essentially stands in the shoes of Mrs. Slotkin.

[00:06:09] Speaker 03:
For goodness sake.

[00:06:11] Speaker 03:
Yes.

[00:06:11] Speaker 03:
If that's your privity, you don't have it.

[00:06:14] Speaker 00:
I understand your point, Your Honor.

[00:06:15] Speaker 00:
It's kind of a novel argument, but I think the alter ego

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And again, I want to go back to the commingling because that is often, in these cases, one of the most important factors.

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And there was competing evidence here also in the respect that the commingling was between the entities and not the debtor.

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So all these entities use the same bank account, the same accountants, the same phone number, but the debtor himself was not part of this commingling.

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I also wanted to point out that it's extremely rare to grant summary judgment on alter ego.

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There aren't many cases.

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The trustee cited the Nielsen case in her brief.

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And in that case, there was no capitalization at all of the entity.

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And the defendant did not file any evidence to oppose the summary judgment motion.

[00:07:20] Speaker 00:
So for these reasons, I think there should be a reversal, and the case should be tried on the merits.

[00:07:27] Speaker 00:
Thank you.

[00:07:28] Speaker 01:
Thank you, Council.

[00:07:41] Speaker 02:
Good morning, Your Honor.

[00:07:43] Speaker 02:
Robin Sokol of Leach-Tichman on behalf of the appellee, Alyssa D. Miller, the Chapter 7 trustee.

[00:07:51] Speaker 02:
I wanted to start off.

[00:07:53] Speaker 02:
Appellant just argued they want it reversed so they can go back to court and have a trial.

[00:08:03] Speaker 02:
And before I get into addressing the other issues, what struck me when he said that was, to what end?

[00:08:13] Speaker 02:
As noted in our brief, this appeal is moot at this time.

[00:08:20] Speaker 02:
Granted, when it was first appealed, that wasn't the case.

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But now, all of the assets have been completely administered.

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And I do want to go through how they were administered.

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Most of them were administered through either a sale.

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These sales were approved by the bankruptcy court.

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At no time did any of the appellants come into court or file an objection to the sale of these assets.

[00:08:48] Speaker 02:
As a result of these sales of real property and also held by various LLCs and inventory held by antiquarian, with respect to the real property, millions of dollars was paid to secure creditors.

[00:09:08] Speaker 02:
Out the door, gone.

[00:09:12] Speaker 02:
In addition, if the assets weren't sold,

[00:09:18] Speaker 02:
they were abandoned.

[00:09:21] Speaker 02:
Real property assets were abandoned.

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And interestingly, they didn't get abandoned back to the trust or the limited liability companies.

[00:09:31] Speaker 02:
They got abandoned back to Mr. Slotkin because they had been brought into the estate.

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And when assets are abandoned from the bankruptcy estate, they go back to the debtor.

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So all assets have been

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fully administered.

[00:09:47] Speaker 02:
That was not the case when I prepared the brief.

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And I did disclose that.

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The last asset to be administered was the sale of one of the, it was the 14257 Chandler Boulevard property.

[00:10:05] Speaker 02:
And that occurred, I believe that closed by the end of September 2023.

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Thereafter, the trustee abandoned

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not only Olympic LLC that was, I believe, the holder of that, but it abandoned the rest of the LLCs that had not already been abandoned.

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At this point, there are no more assets in the estate of the ones that were brought into the estate.

[00:10:37] Speaker 02:
So if this court were to do what appellants have requested, which is

[00:10:43] Speaker 02:
send it back to the bankruptcy court, there is absolutely no effective relief that can be granted.

[00:10:51] Speaker 01:
So you're saying that since the briefing, all the properties that have come up have been abandoned by the trustees, so it goes back to the debtor?

[00:11:00] Speaker 02:
Well, at this point, they've been sold.

[00:11:05] Speaker 03:
Sold for the benefit of the estate?

[00:11:08] Speaker 03:
Correct.

[00:11:09] Speaker 03:
So I totally missed this.

[00:11:11] Speaker 03:
Is that in the record in front of us somewhere?

[00:11:13] Speaker 02:
Yeah, it's in the brief.

[00:11:14] Speaker 02:
It's the last part of the brief, or the last argument is the mootness argument.

[00:11:25] Speaker 02:
Sorry, I need to find my page 40.

[00:11:35] Speaker 02:
This appeal is moot.

[00:11:39] Speaker 03:
But I thought you just told me that this had happened since the briefing.

[00:11:43] Speaker 02:
No, no, no.

[00:11:45] Speaker 01:
That's how I understand it, too.

[00:11:47] Speaker 01:
I apologize.

[00:11:47] Speaker 02:
That things have happened and that we needed to be updated.

[00:11:50] Speaker 02:
Since the briefing, the assets have been fully administered.

[00:11:56] Speaker 02:
When the brief was submitted, there was one asset.

[00:12:00] Speaker 02:
And then maybe two limited liability companies that had not been abandoned yet.

[00:12:06] Speaker 02:
They hadn't been abandoned.

[00:12:08] Speaker 02:
The one asset was sold.

[00:12:09] Speaker 03:
The limited liability company is... Okay, so let me come back to my question.

[00:12:14] Speaker 03:
So at the time of briefing, it was not entirely moot.

[00:12:17] Speaker 03:
You're saying it's now entirely moot.

[00:12:19] Speaker 03:
I missed it that it's entirely moot.

[00:12:22] Speaker 03:
It sounds as though you sent us a 28-J letter or something else to alert us to this fact?

[00:12:27] Speaker 02:
No.

[00:12:28] Speaker 02:
The 28-J letter was to deal with your...

[00:12:31] Speaker 03:
So this is the first time we've heard that it's now entirely moot?

[00:12:35] Speaker 02:
No, that's not correct.

[00:12:37] Speaker 03:
So what did alert us to the fact that it was entirely moot?

[00:12:40] Speaker 03:
Something that I missed.

[00:12:41] Speaker 02:
It's in the brief and the only asset that had not been sold yet was the Chandler property.

[00:12:48] Speaker 04:
So it wasn't moot then at the time of the brief?

[00:12:50] Speaker 02:
Well, it is moot.

[00:12:52] Speaker 04:
It says almost all the assets have been fully administered in the brief.

[00:12:55] Speaker 04:
So that's not moot.

[00:12:56] Speaker 04:
If you have some assets, it's not moot.

[00:12:58] Speaker 02:
I respectfully disagree.

[00:13:01] Speaker 02:
Even if all the assets had not been administered, what remedy can be structured for the debtor or for the appellant if it gets sent back?

[00:13:17] Speaker 02:
Most of the money has been dispersed already.

[00:13:19] Speaker 04:
As a practical matter, maybe your opposing counsel, the opposing counsel will answer the question, but why is he pursuing this if it's moot, if all the assets have been disbursed?

[00:13:30] Speaker 02:
I will let him respond to that.

[00:13:31] Speaker 02:
I knock and adventure a guess.

[00:13:33] Speaker 02:
I'm guessing because his client.

[00:13:35] Speaker 04:
Is this a collateral attack somewhere, somehow?

[00:13:38] Speaker 04:
I'm just curious why.

[00:13:40] Speaker 02:
They didn't address the mootness argument.

[00:13:42] Speaker 02:
No, I don't know why, because the counsel was hired to pursue this appeal.

[00:13:49] Speaker 02:
If it gets sent back, there is no remedy.

[00:13:57] Speaker 02:
And even if it was sent back prior to the sale of the Chandler property, there would still be no remedy that could be structured if they won.

[00:14:07] Speaker 02:
And I would like to get back to the reason they want it sent back, which is because they believe that there should be a trial

[00:14:19] Speaker 02:
So Mr. Slotkin can testify about facts that already have been presented to the court.

[00:14:27] Speaker 02:
Mr. Slotkin has presented, there is a plethora of evidence in this case.

[00:14:35] Speaker 02:
Most of the evidence, especially the evidence relied upon by the trustee in demonstrating that the trust

[00:14:45] Speaker 02:
and all assets they hold or alter egos of the debtor was based on emissions by the debtor.

[00:14:53] Speaker 02:
In his answer, he admits to most if many of the facts.

[00:14:58] Speaker 02:
At his 341A exam, he admits to facts.

[00:15:02] Speaker 02:
In request for emissions that I propounded upon him, his response, he admits to the facts we rely upon.

[00:15:11] Speaker 02:
The evidence comes directly from Mr. Slotkin.

[00:15:15] Speaker 02:
And the court considered the statements that only 120, like small, de minimis amounts were used from the trust for his benefit.

[00:15:28] Speaker 02:
The truth of the matter is, and both the district court and the bankruptcy court found this after reviewing the record, the full record, which is enormous.

[00:15:41] Speaker 02:
The truth of the matter is that Mr. Slotkin

[00:15:45] Speaker 02:
His lifestyle was fully supported by assets of the trust.

[00:15:49] Speaker 02:
He held an equitable interest in those trusts.

[00:15:52] Speaker 02:
He lived in a multi-million dollar house that he did not pay rent on.

[00:15:59] Speaker 02:
He didn't pay taxes on.

[00:16:01] Speaker 02:
He had country club memberships.

[00:16:05] Speaker 02:
None of that, all of that came from assets held by the trust.

[00:16:11] Speaker 02:
And as far as I see, my time is up.

[00:16:14] Speaker 02:
But on the 13 factors, I will point out the court asked Appellant's Council to go through the 13 factors that we relied upon, that the trustee relied upon.

[00:16:25] Speaker 02:
He didn't do that.

[00:16:27] Speaker 02:
He pointed out to the same two other factors, which were proper capitalization, which that one and then

[00:16:41] Speaker 02:
The second one, they kept books and records.

[00:16:45] Speaker 02:
They had no minutes.

[00:16:46] Speaker 02:
They had organizational formation documents, but that's the extent of it.

[00:16:54] Speaker 02:
My declaration with Mr. Maimon's responses to discovery will support that.

[00:17:03] Speaker 02:
The other thing is when reviewing, there are 24 factors.

[00:17:08] Speaker 02:
We have pointed out 13 factors.

[00:17:11] Speaker 02:
And none of them are subject to, they're based on factual statement.

[00:17:18] Speaker 02:
They're based on evidence that is wholly undisputed.

[00:17:23] Speaker 02:
And the record below fully supports the facts that both courts, the bankruptcy court,

[00:17:34] Speaker 02:
and the district court relied upon when applying the law.

[00:17:37] Speaker 02:
And nothing has been presented demonstrating that the lower courts did not rely on proper legal standards or apply those standards improperly.

[00:17:49] Speaker 02:
Thank you.

[00:17:54] Speaker 00:
Thank you, Your Honors.

[00:17:54] Speaker 00:
Very briefly regarding the issue of mootness, and I think the record is insufficient for this Court to determine that the appeal, you know, ought to be dismissed on that basis.

[00:18:06] Speaker 00:
But in reality, the assets have not been fully administered.

[00:18:10] Speaker 00:
One property has yet to be sold and there's millions of dollars that are sitting waiting to be distributed.

[00:18:18] Speaker 00:
So there is an effective remedy if we were to prevail and that would be to give the money back to its rightful owner.

[00:18:26] Speaker 00:
Now the properties are gone, that's understood, but the money can come back and be administered as it was before under the trust.

[00:18:38] Speaker 00:
I have nothing further.

[00:18:40] Speaker 01:
All right.

[00:18:40] Speaker 01:
Thank you very much for your argument.

[00:18:42] Speaker 01:
The matter is submitted.