Mr. Harris. Good morning, Your Honor. For the
record, David Hirsch, McDermott, Will, and Schulte
on behalf of the debtors and debtors in possession
of these cases. First, Your Honor, thank you
very much for scheduling this hearing so quickly.
We really appreciate it. With me on Zoom today,
Your Honor, is Mr. Mark Renzi. He's the debtors
chief restructuring officer. He's also the signatory
for the complaint that we filed, the verified
complaint we filed initiating this adversary
proceeding. And in the courtroom today, on my
right, my colleagues Joe Evans and Dan Coltman,
Mr. Evans will be doing the argument today. Your
Honor, as you saw from the agenda, there's just
one item on the agenda today, and that's the
debtor's motion for a temporary restraining order
and joining the continuation of certain litigation
in Illinois. Yes. Or an alternative extending
the automatic stay of the debtors, directors,
and officers to prevent the litigation against
those directors and officers. Your honor, unless
you have any initial questions for me, I'm happy
to turn the podium over to my colleague, Mr.
Evans, to - Yeah, I'm happy to hear from the
parties. All right. Okay, thank you. Thank you,
your honor. Good morning, welcome. Good morning.
Joseph Evans, McDermott Will, and Schulte. Your
Honor, first we'd like to move into evidence,
Adversary Proceeding Doctrine Number 1, which
is the verified complaint, and Adversary Proceeding
Doctrine 5, which is the declaration of David
Hearst and associated exhibits. Okay, does anybody
object to the admission of the verified complaint
in Mr. Hearst's declaration purely for the purposes
of today's hearing? Your Honor, this is Ronald
Gillard. Mr. Gillard, good morning. I'm not sure
if my co -counsel wishes to speak. It looks like
they're having some technical issues right there.
Yes. So just hold off a second. Let me introduce
him. It's Thomas Patterson from the Patterson
Law Firm from Chicago. His pro hoc has been admitted
on a DIA. Yes. Yeah. I had the pleasure of granting
that motion. OK. Thank you. Yeah. Why don't we
give Mr. Patterson just a second to get a...
My apologies, Your Honor. OK. No worries, Mr.
Gellert. No worries. Happy opening day to celebrate.
Okay, Mr. Patterson, can you hear us okay? Looks
like the answer is no. Okay, in the spirit of
the day that it is, Mr. Gellert, I may ask you
to pinch hit. Yes. Good one. With respect to
the admission of the complaint and, you know,
obviously the fact that we haven't had the opportunity
to look at sort of the things being asserted
in there, I mean, they can be admitted for the
purpose of, you know, this is what you say they
are, but we can't agree that they are all purposeful,
you know, all true and all those things without
having the opportunity to really kind of vet
them. So for the record, in terms of determining
a TRO, yeah, sure. but not for the truth of the
matter that if they're later said to be, oh,
well, they're admitted and recognized. Understood.
Understood. It's purely for the purposes of today's
hearing. Yes. And certainly, your clients. I'm
not trying to trip them up. I just don't want
to. No. Your client's rights to contest the complaint
and to ultimately test any of the contents of
the declaration supporting documents is reserved.
All right. Great. Thank you, Your Honor. OK.
Thank you, Mr. Gellert. OK. Mr. Evans. Thank
you, Your Honor. The debtors filed this adversary
proceeding in motion for a TRO to enjoin the
Illinois litigation against three of Blockville's
directors and officers. The Illinois litigation
was brought by two creditors alleging that Blockville's,
the debtors, violated their terms and conditions
by commingling assets and that Blockville's made
misrepresentations concerning the safety of those
assets. There are 11 counts, nine against the
company and two against the three directors and
officers. and they all seek essentially the same
thing, which is the return of crypto that was
provided by the plaintiffs in that case to block
those. On March 20th, the Northern District of
Illinois stayed the Illinois litigation as to
the debtors. There are two remaining counts,
count five, aiding and abetting fraud, and count
10, which is a breach of fiduciary duty claims.
In that order, Judge Kennelly stated that he
was seeking further advice from the bankruptcy
court regarding the extent of the automatic stay
as it relates to the individual defendants. Accordingly,
we file this adversary proceeding in this application.
The state should be extended to the claims of
the DNOs for four primary reasons. One... Let
me ask you one question, though. Sure. The relief
that you're seeking today is under Section 105
and Rule 65. As I read the proposed order, you're
not seeking any relief or any findings under
Section 362 today. Am I misunderstanding the
proposed form of order? The proposed form of
order was in the alternative, I believe, Judge.
So yes, but you're right. The primary relief
we are seeking is under 105, which is a TRO until
we have a final hearing on the extension of the
automatic stay. And some of the things we're
going to be arguing today, Judge, relate to 362,
which goes to the likelihood of success on the
merits, and that's why we're arguing about those
things. Relevant, but yes, I believe we're seeking
is under 105. Okay, fair enough. The state should
be extended to the D's and O's for four reasons.
One, the cases against the D's and O's are inextricably
interwoven with the conduct of the debtors. Block
those. Two, adjudicating the case against the
D's and O's will necessarily decide issues that
are critical to this bankruptcy proceeding. Three,
there will be significant costs in defending
the action against the D's and O's. And four,
the fiduciary duty act claim, and specifically
we contend, is an estate cause of action that
should be stayed. First, our read of the complaint
is that this is really a claim against block
fills and not the directors and officers. In
each of the allegations concerning representations
that were made prior to plaintiffs deposit to
block fills, the plaintiffs actually identify
other block fills employees, not any of the defendants.
That's complaint 20, 21, 22, 23, 25, and 30.
In certain of those allegations, they identify
generally either block fills representatives,
employees other than the defendants, but never
any of the D's and O's. And Plaintiff's primary
allegation is that they were lied to before they
made the deposit. On January 16th, they made
this deposit. But none of the statements prior
to January 16th relate to any of the defendants.
And I raise this because it shows, we think,
that this claim is really a claim against block
bills and not any one of those directors and
officers in their personal capacity. The second
issue, coming one. The plaintiffs allege that
Blockville's advised plaintiffs that they wouldn't
be commingled. And when they say Blockville's,
they just say Blockville's, the company. They
refer to Blockville's representatives and what
they told them. And then they say that Blockville's
commingled the assets. They don't say that one
of the individual directors and officers commingled
the assets or made the decision to commingle
the assets or even made the misrepresentation
that the assets would not be commingled. Instead,
they say the company did so. That's why we think
it's a claim against the company and not the
Desenos. The only allegation they have specifically
to the Desenos is that after the fact, ex post,
February 6th, February 9th, February 20th, there
were town halls and other meetings where they
said, hey, we're in a bad spot. We're pulling
the gates down. We're not on our withdrawals.
Sorry. Those are the allegations of the Desenos.
And the actual counts, what they say is, Quote
as former CEO and co -founder of defendant They
must have approved the misappropriation of funds
and failed to ensure the proper disclosure of
financial conditions According to all these claims
in reality are claims against Blockville's claims
about the operations and conduct of Blockville's
as a company as opposed to any one individual
director officer In order to prosecute these
claims in Illinois The court in Illinois will
be tasked with answering critical factual questions
that are important to this case. Like one, did
Blockville commit fraud by its representatives
making certain representations to the market?
What did the Blockville's customer agreements
actually mean? Did Blockville have a special
or fiduciary relationship with any of its customers?
Did Blockville commingle its assets? Were they
allowed to do it? Were they not allowed to do
it? To the extent they're commingled, can you
trace them? Can you not trace them? These are
all questions that are core to this proceeding,
that if we have another proceeding in Illinois
deciding the same thing, it runs a risk to, one,
of conflicting rulings, but two, significant
cost. Let's talk about cost for a second. We
have three D's and O's, each with their separate
counsel, each with identification rights under
their corporate documents, each with incoming
claims, as I suspect. against a very small DNO
insurance policy. And if required to continue
prosecuting or defending these claims, we'll
continue to expend resources that otherwise could
be spent on creditors here. Last. They assert
a fiduciary duty claim, which in our view is
an estate claim. They don't identify any unique
facts that make them any different than any other
customer. Quite the contrary. They say that they
had the same contract that everybody else had
and they weren't given their opportunity to edit
it. They don't allege any special relationship
between them and any particular director or officer.
And so these are generalized derivative claims
that are owned by the estate and not these two
plaintiffs. Do I need to make any findings about
that to rule on the motion today? No. No. To
rule on the motion today, there are four factors.
One is whether the movement has shown a reasonable
probability of successful merits in this context
is whether we have a shot every order to reorganize
reorganizing In this case, we have a term sheet
already on file to whether the movement will
be irreparably injured by denial of the relief
as We describe this cost. It's a risk of conflicting
rulings as distraction three whether granting
preliminary relief or result an even greater
harm to the nonmoving party. This case has not
been litigated for years. This is three weeks
old. And these plaintiffs are part of the ad
hoc committee. They're involved in the bankruptcy
case. I suspect they'll be filing a claim. And
they can adjudicate their claims here. Four,
whether granting the preliminary relief will
be in the public interest. We contend yes. That
the types of costs and distraction and disruption
that this case will cause if it's allowed to
proceed against these. three directors and officers
by these two plaintiffs will cause the type of
farm that the automatic stay was intended to
stop. So for those reasons, we think at a minimum
the TRO should be granted today. Okay, thank
you. Mr. Patterson, good morning. Can you hear
me okay? Yes, I can now, Your Honor. There was
about a five -minute delay when I could not hear
you, but I can now, and thank you very much.
Well, welcome. It's good to have you here. Thank
you. Your Honor, we oppose the motion for a temporary
restraining order. In my view, it reads more
like a motion for a preliminary injunction. And
what I propose we do today is have a briefing
on their motion and let them piggyback on our
previously filed motion to lift the stay and
that we argue both motions on April 16th as previously
set forth by the court, if that is convenient.
to the court. The facts are, obviously, our client
was in discussions with BlockFills in December
of 2025, and he executed an agreement with them
in January of 2026. They agreed to keep his bitcoins
and cash in trust. That's according to Exhibit
2, page 7 of our complaint. in paragraphs 30
to 32, among other paragraphs in our complaint.
On February 6th, 2026, he submitted a letter
of rescission and demanded the return of his
personal property. That's in paragraph 53 and
exhibit 13 of our complaint. When he did not
get the return of his property, he filed a complaint
on March 6th, 2026. Thus far, there has been
no challenge to the merits of the complaint that
he filed. We obtained a temporary restraining
order from Judge Kennelly in the Northern District
of Illinois on March 6th, 2026, and they filed
this bankruptcy petition on Sunday, March 8th,
2026. We had a status before Judge Kennelly on
March 20th, 2026, and he extended the TRO until
April 3rd. We have a status before him on April
1st. Now, my understanding is that Judge Kennelly
has decided that on April 1st, he wants to hear
what I'm doing with this. You're asking me to
forego this stage of the proceedings and conduct
an evidentiary hearing in a couple weeks. Why
would I do that to Judge Kennelly when he's asking
a question that he'd like me to answer? What
I will tell Judge Kennelly is that you have the
matter under briefing and we have a hearing scheduled
for April 16th. Okay, I'll tell you right now.
I'm not going to do that to Judge Kennelly. He's
asked a question. He deserves an answer. and
I'm going to provide a ruling today. What I do
in that ruling is still open, but I think I would
encourage you to direct your arguments towards
the merits of the factors for a preliminary injunction
under Section 105A. Okay. Obviously, it's a little
disconcerting to have them leapfrog my own motion
to lift the stay, which sets forth the arguments
and the case law for lifting the stand, transferring
the entire case to Judge Kennelly. But let's
talk about what they allege in this TRO. They
haven't, as I mentioned, they have not suggested
anything to negate the merits of our complaint.
That is, they don't challenge in any kind of
evidentiary way the fact that this Bitcoin can
be traced and is a rez. Just as much as a painting
is a rez or a diamond ring is a rez This bitcoin
was submitted to them in trust and it can be
traced and we can recover it Our case is not
in common with the other Creditors to my knowledge
even though they have listed us in a group with
those other creditors is I don't know any other
creditor that had a submission of their bitcoin
and cash on in January of 2026 I don't know any
other claimant or creditor who issued a letter
of rescission on February 6, 2026. And I don't
know any other claimant or creditor who had their
Bitcoin swept from a trust account within an
hour after depositing it. So this is a constructive
trust claim against the companies. And that's
why I think it should be heard by Judge Kennelly.
These are personal claims to Mr. Bertram and
his company. They are not general claims. I know
there's been some broad... The language that
you include in Count 10 is classic derivative
claim type language. You talk about the fiduciary
duties that are owed to creditors such as your
client. Yes. I've seen a lot of complaints, and
this is classic derivative claim language. I
think it's hard to understand how you're arguing
that those are direct claims. I understand that
we have that language in that count. But remember,
no complaint is bad in substance if it notifies
them of what we're arguing. And I think the fiduciary
aspect of this case, they are 180 degrees to
the wrong. I understand that there is a case
from the Delaware Supreme Court that says that
based on the zone of insolvency alone, a general
creditor will not have a direct claim against
the officers of the company. I understand that.
But this is a trust case, a constructive trust
case, just as if somebody submitted money to
my client fund trust account. And then if I embezzled
it or swept it into my general account, that
individual client has a claim against me. It's
not the claim of my firm against me. It's a claim
of the individual against me for sweeping the
money out of the trust account. And so we have
an individual claim. Yes, we say that they should
have known that they were insolvent. There's
no question we're saying that. But the fiduciary
duty claim is an individual claim based on their
misappropriation of money that they were supposed
to keep in trust. And therefore, we don't have
the ruling of the Delaware Supreme Court is not
on point in that respect. And as a matter of
fact, even in their brief at page 18, they described
two cases which support my point rather than
their point. They say that if there's a claim
that affects an individual rather than the mass
of creditors, then there is a claim individual
and it is not a derivative claim. And that's
what we are alleging too in this situation. And
I direct the court's attention. There's two cases
that they cite. on page 18 of their brief or
motion papers, where they say if somebody has
an individual claim, it's not a general claim,
it's not a derivative claim. And so that's the
situation that we have here. The representations
that we allege are representations that were
personal to him. And it was his agreement. And
I don't know if anybody else had a similar agreement
with him. That hasn't been determined. I'm sorry,
just so you understand, who's the him and the
his? which individual you're referring to. Sorry,
Judge. That's okay. Mr. Bertram, the representations
were made to Mr. Bertram, and I don't know if
the same or similar representations were made
to others. We alleged that he had personal conversations
with representatives of block fills, and that
is part of our individual claims, and that's
unique to him. So I it seems to me that we have
a unique claim not a general claim As to the
other creditors or claimants now with respect
to the burden There is no burden that is going
to take place in the next 16 days I'm not going
to issue discovery in the next 16 days. I couldn't
I'm not going to make a claim on for indemnity
and nobody else is going to make a claim for
indemnity It wouldn't be a claim for indemnity.
How do you know what they're what the Dno defendants
are going to do they they're gonna have to they've
already incurred costs. I am assuming they're
gonna have to be in front of Judge Kennelly next
week. That sounds like a basement basis to write
your advancement letter Well, I if they had done
that it should have been included in their papers
In other words, this is the dog that did not
bark. In the absence of proof, I am saying that
they haven't made an indemnity claim, and they
haven't incurred any indemnity fees, and they
haven't made a claim to the D &O carrier. But
maybe more important, there won't be an indemnity
claim if we get our res back. If we get our Bitcoin
back, there's no insurance that'll be paid out.
There's no indemnity that will be paid out. We
want our Bitcoin. We want our REZ returned to
us. As to cost, the status, the last status before
Judge Kennelly was 15 minutes. And so the fact
that we have a status on April 1 is not going
to be a lengthy hearing. But I do want clarification
on one thing. We say in our motion to lift the
stay at footnote four that our understanding
of the first day motions would not permit them
block fills to access our Bitcoin or our cash.
And my understanding is that none of the first
day orders that were entered by your honor would
allow them to do that. In which case then, as
long as that's true, then there is no need for
me to ask you for a TRO prohibiting that while
we litigate these issues, or for asking Judge
Cannelli to extend his TRO again while we litigate
these issues. So I just mentioned that to avoid
any potential confusion on that. The way I view
these first -day orders, the cash collateral
orders, it does not affect what Mr. Bertram deposited
with the company. So if that's true, if that's
true, then there's no harm to you If I were to
or to your clients if I were to enter this order
today Right. Well, there's no I started you just
argued that understood I the harm is The harm
exists not in the next 16 days I can see that
Right the issue then is on the 16th when you
consider our motion to lift the stay the entire
stay What is the harm at that point? Is there
harm to the creditors at that point or to the
bankrupt estate at that point? And I'm willing
to have that argument and I'm anticipating having
that argument and that's what I think it should
should that's how I think it should take place
In other words, there's no emergency now, but
that's going to take place before the 16th that
negates the issue of the TRO It doesn't negate
their preliminary injunction request. We should
have a hearing on that. And I'm prepared to brief
their motion because I've only had it overnight.
And I could submit that by April 6th, which is
the date when their response to our motion to
lift the state is also due. So that's what I
suggest. I don't think that the court should
reverse the burden of proof and place it on me
to demonstrate an absence of harm. At the TRO
stage, the burden is on them to demonstrate that
there's extraordinary harm or an emergency here
and there is no emergency here. We set up our
briefing in the ordinary course. And I don't
think the court respectfully should reward gamesmanship
just because they leapfrogged our motion to lift
the state and got an earlier hearing date on
that. I did not ask for an early hearing date.
I wanted my opponents to have a time to argue
the motion on the merits and then we'll argue
it on the 16th. So in the meantime, there is
no indemnity, there's no DNO insurance, there's
no discovery that's going to be issued, there's
no burden. And there won't be any burden ultimately
on the estate if they return our property. It's
our property. It is traceable. That's an issue
to be decided, right? Yes, but on these papers...
You may be right about that, but that's not an
issue that I can decide today. Well, you can
understand you could you could decide the likelihood
based on Based on the contract that said that
they were going to keep it in trust. That's all
I'm saying in terms of for the next 16 days There
is no likelihood of success on the merits or
Any emergency that requires immediate action
an immediate award that there's no there's no
reason for that likelihood of success on the
merits in the context of a of a bankruptcy case
in a motion like this, we're looking at the likelihood
that the reorganization will succeed. I think
you're arguing a different issue, I think. Well,
for example, if we succeed in compelling the
return of our REZ, then the reorganization can
proceed without us, without any difficulty. As
a matter of fact, they'd probably be happy to
see us go. So I I don't I don't see us in you
know, if anything we would complicate by remaining
in the bankruptcy We would complicate the reorganization
because we're going to assert our individual
claim that the res is ours and so it actually
we have Suggested in our motion papers to lift
the stay That duplicative litigation is avoided
if you lift the stay and allow judge Cannelli
to decide the case It's simpler, it's easier,
and you avoid any kind of residue decoder or
collateral estoppel effect or anything if you
just let him decide the matter. And the term
sheet that's been discussed among the creditors
can either proceed or fail as the parties proceed.
But I'm the tail wagging the dog on that. I'm
not going to get into that. And it would be more
confusing for me to do so. So, it is traceable.
They haven't negated the fact that it's traceable.
That's in paragraph 49 of our motion to lift
the state and its others. And therefore, I ask
that the court deny the TRO, but continue the
preliminary injunction to April 16th and let
them piggyback on the briefing schedule that
we've already set. We will provide our brief
on April 6th, which is faster than we'd normally
be entitled to. in order to get this thing heard
on a preliminary injunction basis. And that will
allow the court plenty of time to decide what
is better. What is better for the bankrupt estate?
What is better for us? You can balance both those
issues. And I think that provides for a more
reasoned decision rather than rushing it on no
briefing from us, just argument and letting them
leapfrog our motion to lift the stay. Okay. So
I suggest we keep the status quo. Thank you,
Judge. Thank you, Mr. Patterson. Mr. Evans, any
response? Joseph Evans, Big Double, and Schulte
for the debtors. Just a brief response. I want
to start with one of the last things that Mr.
Patterson says, that he wants the judge in Illinois
to determine whether it's his client's res or
not. What he's asking for is the judge in Illinois
to determine whether the assets provided by Blockville's
customers or property of Blockville's estate.
Now, it's a core issue. It's a core issue. I'm
not buying into it. And with respect to the uniqueness
of his client's claims as compared to other creditors,
they put in paragraph 18 of their complaint that
it's the same contract that everybody else signed.
They weren't able to give an edit. They weren't
able to make any negotiations. It was on their
website. That was the contract. That's it. And
so these aren't unique claims to them. And so
your honor his motion is seeking relief from
say to pursue block fills in Illinois. That's
a different thing than what we're in front of
today Here today. We're seeking a TRO for the
claims against the three directors and officers
and all of the Allegations that mr. Patterson
cited about the misrepresentations and the promises
and the lies and the things that they're saying
what they were wronged by in their complaint
those are all attributable to Either Blockville's
representatives or people other than those three
DMOs. Their gripe is with the company. And these
are company claims that must be stated. I have
nothing more to say. Okay. Okay. Thank you. I'm
going to take a recess for probably about five,
ten minutes. I'm sorry. Does anybody else wish
to be heard? Your Honor. Yes, apologies, your
honor. I have been, this is Jane Danlare from
Cleary Gottlieb, Seaman Hamilton on behalf of
the ad hoc group of Blockfield's customers. And
I apologize, I have been trying to log on through
Zoom, but just have been unable to do so. So
I apologize for that. Just very briefly, your
honor, I wanted to express our... support in
favor of the TRO. We are concerned about the
prejudice that may be caused to the estate claims
and to the DNO policy that those are assets that
should accrue to the benefit of all of the customers
and creditors in this case. And I think in the
words of Mr. Patterson on the analogy he used,
the dog could bark tomorrow, right? They could...
ask for an indemnity tomorrow, and so we do think
it's important to preserve the status quo, and
it, I think, as Your Honor articulated and suggested
in your questioning, it's clear that there is
not a prejudice to the movement here of extending
that TRO. Thank you very much. Robert Weber of
Chipman Brown, Cicero and Cole. We represent
Joseph Perry, the interim CEO. I had not intended
to speak this morning. I just want to make it
clear that if the TRO is not granted today, there
will be an indemnification and advancement request
made immediately. And frankly, I'll be buying
a plane ticket to Chicago for the hearing on
April 1st because it's an in -person hearing,
even if it will only take 15 minutes. Of that
court's time, it'll take substantially more,
and that will be an indemnifiable expense. Okay.
Thank you, Mr. Weber. Thank you, Your Honor.
Appreciate it. Mr. Samus, good morning. Your
Honor, good morning. First, good to see you.
I don't want to get lost. Happy opening day.
I know that you made that remark at the beginning,
but I'll just figure I'll just I'll carry it
forward. Your honor, Chris Sammits from Ice Miller
on behalf of Mr. Hammer. Your honor, all I wanted
to do was eliminate any speculation. We have
already put the carriers on notice. The debtors
filed their bar date motion yesterday, and we're
going to be submitting an indemnification claim
that we're currently working on now. So we are
incurring costs as this goes and significant
costs. We've been on the phone with Mr. Hammer
trying to establish the facts of the case so
that we're able to adequately defend him in whatever
realm we end up ultimately defending him in.
But the point is, is that we are incurring costs
and they are significant. Thank you very much.
Anybody else? Okay, we'll be in a brief recess.
I appreciate the arguments of the parties, but
I'm prepared to rule. This is my ruling on the
debtor's motion for a temporary restraining order.
I file a docket number three in this adversary
proceeding, which is number 26 -50224. I've reviewed
the motion, the papers that were filed in connection
with the motion, including the Hearst declaration
and the attachments to it. and I've considered
the arguments of counsel that I've heard today.
I'm going to grant a temporary restraining order
under Section 105 of the Bankruptcy Code and
Federal Rule of Civil Procedure 65B, which is
made applicable here by Bankruptcy Rule 7065.
My ruling is going to be narrow this morning.
It doesn't address and expressly reserves all
questions regarding the scope of the automatic
stay under Section 362, including whether the
automatic stay already applies to any claims
that have been asserted against the D's and O's
in the Chicago litigation, and including whether
any claims in that litigation are a property
of the debtor's estates under Section 541 of
the Bankruptcy Code. We'll address those questions
at a preliminary injunction hearing, and we'll
talk about scheduling on that. So today's ruling
rests solely on section 105A. I'll make the following
findings based upon the verified complaint which
Mr. Renzi has verified under penalty of perjury.
And on, again, the Hearst Declaration and the
exhibits attached to it. These findings are purely
for the purposes of this temporary restraining
order. They are not findings of fact for any
other purpose. And nothing in this ruling should
give preclusive effect to any subsequent proceeding
in this court or any other court. The debtors
operate under the name block fills and they provided
cryptocurrency trading infrastructure and technology
to institutional and professional customers globally,
including spot trading, over the counter derivatives.
borrowing and lending, and cryptocurrency mining
services. The debtors filed their petitions for
relief under Chapter 11 on March 15, 2026, and
these cases are being jointly administered before
this court under case number 26 -10371, and the
debtors are continuing to act as debtors in possession.
The individual defendants. Nicholas Hammer is
the debtor's former CEO and co -founder. Gordon
Wallace is the debtor's president and co -founder.
Joseph Patrick Perry is the debtor's interim
CEO. And I'll call them collectively the DNOs.
I make no finding at this time regarding the
nature, scope, or validity of the claims asserted
against the DNOs in the pre -petition litigation
in Chicago. And nothing in this rule should be
considered to constitute a determination of their
individual lives. or the extent of their respective
roles. On March 5th, 2026, 1548199 Alberta Limited
and Robert J. Bertram filed their lawsuit in
the United States District Court for the Northern
District of Illinois where the case has been
identified as case number 26 -CV -02451. And
that lawsuit names his defendants, each of the
debtors, and the three DNOs who I just identified.
The claimants allege, among other things, that
they deposited certain Bitcoin and U .S. dollars
with block fills in January and that block fills
is wrongfully retained and commingled the assets.
The complaint in the pre -petition litigation
asserts 11 counts. Nine of those counts are asserted
solely against the debtors. Two counts that were
in issue today, count five, which alleges aiding
and abetting fraud, and count ten, which alleges
breach of fiduciary duties, are asserted against
these D's and O's. The pre -petition litigation
has been automatically stated against the debtors
by operation of section 362. Whether and to what
extent any claim in that litigation against the
D's and O's is separately stayed by Section 362
as a question that I'll reserve for the preliminary
injunction hearing. On March 5, 2026, the claimants
moved for a temporary restraining order in the
Illinois District Court seeking to enjoin block
bills and the D's and O's from certain activities
and to freeze assets that the claimants allege
are their property. And on March 6th, 2026, the
Illinois court did enter an ex parte temporary
restraining order. On March 20th, the court held
a telephonic status hearing and extended that
order through April 3rd. And as I understand
it, it was conditioned on receiving further advice
from this court regarding the extent of the automatic
stay as it relates to the D's and O's. and an
in -person hearing in the Illinois District Court
is scheduled for April 1, 2026, which is only
six days from today. Clearly, as I understood
the Court's minute entry, the Court is expecting
my answer, and I'm giving him an answer. The
indemnification obligations are provided for
under the organizational documents of certain
of the debtors, and those obligations run in
favor of the D's and O's. Specifically, it appears
that the bylaws of Realist Technology Group Holdings,
Inc., which is a Delaware corporation, alligates
the corporation to indemnify any person who is
or was a director, officer, employee, or agent
against expenses incurred in connection with
any threatened pending or completed litigation.
The articles of the association of other entities
contained similar sort of language. And the court
does find today that continuation of the pre
-petition litigation against the Ds and Os would
trigger or would create a substantial risk of
triggering defense cost advancement and indemnification
obligations under those provisions. Again, I'm
making no finding at this time regarding the
magnitude of those obligations or whether any
particular obligation is enforceable. The verified
complaint states that certain of the D's and
O's are integral to the debtor's restructuring
efforts. And specifically, the debtors have asserted
that the continuation of the pre -petition litigation
against those D's and O's would distract key
personnel at a critical stage of these Chapter
11 cases. And the court accepts that representation
to be true for the purposes of the TRO. Since
the petition date, the debtors have also been
involved in negotiating a framework for an exit
plan with an ad hoc group of customers that would
provide for a debt -for -equity exchange transaction.
I would note that the related term sheet has
not been executed. It is binding, to my knowledge,
and I make no finding at this time about the
likelihood that the debtors will successfully
conserve the plan. That question would be reserved
for preliminary injunction hearing. But for the
purposes of the TRO today, and for this purpose
only, I find that there is no evidence before
this court suggesting that the debtors restructuring
is infeasible or is not likely to succeed. This
is an emergency application. The debtors commenced
this adversary proceeding yesterday on March
25th. and the April 1 hearing date before Judge
Kevney is only six days away and the TRO in that
court expires on April 3rd. If I were to not
act before April 1st, it appears to me that the
claimants would seek to proceed against the D's
and O's in the Illinois District Court while
the core legal questions at issue here, including
the extent of the automatic stay and whether
those claims are inextricably interwoven with
these bankruptcy cases would remain undecided.
I would note that the debtors have served a copy
of the motion on the claimants and they have
appeared today. I clearly have jurisdiction over
this proceeding under 28 USC sections 157 and
1334. And this matter has been referred to me
by the amended standing order of reference from
the district court dated February 29, 2012. This
is a court proceeding under 28 USC 157 B2 and
venue is proper here under 28 USC 1408 and 1409.
To move on to the legal standard under section
105. It authorizes this court to issue any order
of process or judgment that is necessary or appropriate
to carry out the provisions of Title 11. And
a request for injunctive relief under Section
105 is evaluated under the traditional preliminary
injunction standard adapted to the bankruptcy
court as established in this circuit by numerous
cases. That standard requires the court to consider
four factors. First, to look at whether there's
a reasonable probability of success on the merits
of the request for a preliminary injunction.
Whether the movement will suffer irreparable
harm, absent relief being granted today. And
third, whether granting the relief will result
in a greater harm to the non -moving party. And
fourth, whether granting relief serves the public
interest. This is a balancing test, no single
factor. determines the analysis. For the purposes
of a TRO, the court applies the same framework
on an expedited basis, given the requirements
of Rule 65B, with particular attention to whether
immediate and irreparable harm will result before
the matter can fully be heard. Again, I'm applying
Section 105 only. I'm not adjudicating the automatic
stay issues. And I'm not determining whether
the funds that issue are property of state under
Section 541. That is for another day. This TRO
is designed solely to preserve the status quo
and prevent irreparable harm to these states
pending a full hearing on those questions. As
to the first factor, which is probability of
success on the merits, I find that the debtors
had demonstrated a reasonable probability of
success on the merits of the request for a preliminary
injunction. Again, my finding is deliberately
limited at this stage, but a preliminary injunction
under Section 105 is warranted where, among other
things, claims against non -debt or co -defendants
are so intertwined with claims against the debtors
that permitting the litigation to proceed would
effectively require litigations of issues central
to this debtor's reorganization. Here the two
counts against D's and O's in the pre -petition
litigation share their entire factual predicate
with the nine counts that are asserted solely
against the debtors. Please make a note of the
participant for participation in future hearings.
Don't need to hear her coffee order. Count five
again alleges aiding and abetting fraud cannot
be adjudicated without a prior determination
of whether Blockville's committed the underlying
fraud and that's a question that is squarely
at the center of the debtors chapter 11 cases
and that will affect all of the debtors. customers
and creditors, not only these two claimants who
were before me today. Similarly, count two raises
questions about the deans and those alleged fiduciary
duties to creditors and the conduct of the debtor's
business in the period before the petition date.
Those are matters that likewise will be addressed
in this court. So this court finds on the record
here that the debtors have made a sufficient
showing of a reasonable probability success.
on their Section 105 preliminary injunction claim
to warrant interim protection. I express no view
at this time on the merits of the underlying
claims or the defenses in the Chicago litigation.
Next, a look at irreparable harm. And I find
that the debtors have demonstrated that immediate
and irreparable harm to these states will result
absent a TRO. I found three bases for this finding.
First, the debtors have contractual indemnification
obligations to the D's and O's under their organizational
documents. These obligations are not contingent
on a finding of liability. Advancement of defense
costs begins when the litigation is initiated.
And if the Illinois hearing proceeds on April
1st without relief from this court, indemnification
obligations will begin accruing against the estates
as an immediate and direct consequence. And that
would constitute a state harm that can't be undone.
Second, the continuation of the pre -petition
litigation creates a concrete risk that factual
findings and evidentiary rulings will be made
in a proceeding to which the debtors are not
parties because of the automatic stay, but from
which those findings could nonetheless be used
against the debtors through principles of estoppel.
or other principles. And this has been found
on numerous occasions in other cases to constitute
the precise risk of irreparable harm that warrants
extension of protection to non -dead or co -defendants.
Third, the D's and O's who remain active in the
debtor's restructuring will have to contend with
the burden of defending complex litigation in
the Illinois District Court. simultaneously with
their obligations to this court and the debtors
and the reorganization process. That's a drain
on management time and attention and the resource
demands of responding to discovery that would
ultimately flow in both directions between the
pre -petition litigation and these Chapter 11
cases constitute irreparable harm to the debtor's
estates. The balance of harms, which is another
factor to consider, favors entry of a temporary
restraining order. As the claimants argued here,
nothing is going to happen in the next 16 days.
The harm to the debtors of states from denial
of relief, though, as I've described, is immediate,
concrete, and at least one respect, being the
accrual of advancement obligations, which is
self -executing. should the Illinois proceedings
continue. By contrast, the harm to the claimants
from a short duration TRO is limited as I believe
that the claimants have conceded. The pre -petition
litigation is already stayed as to the debtors.
The claimants' ability to prosecute their nine
counts against the debtors is stayed regardless
of what I do with the TRO. But the TRO will temporarily
hold prosecution of the two D &O counts only,
and only for the short period until this court
conducts a preliminary injunction here. Any claims
that claimants have are preserved and will be
addressed in due course in these bankruptcy cases.
So on that record, the balance of harms clearly
favors the TRO. And finally, and to look at the
public interest. And I find that a TRO serves
the public interest here. Congress established
the bankruptcy system to provide an orderly and
centralized forum for the resolution of claims
against a debtor and to provide the debtor with
a breathing spell from creditor pressure sufficient
to provide time to enable a reorganization. Granting
a TRO to allow this court to adjudicate The fundamental
questions of the scope of the stay ultimately
and estate property rights before those questions
are potentially rendered moot or prejudiced by
proceedings in another forum serves the very
purpose for which Congress enacted the Bankruptcy
Code. I'm not going to allow piecemeal litigation
in another court to generate preclusive findings
on issues that are core to these bankruptcy cases.
and that would undermine these cases and the
potential reorganization. So I'm satisfied that
the specific requirements of Federal Rule of
Civil Procedure 65B are met. The verified adversary
complaint is verified under penalty of perjury
by Mr. Renzi. He stated that he's reviewed the
allegations and that they are true to his knowledge.
That constitutes a verified pleading sufficient.
to support emergency relief under Rule 65B1A.
I further find that the reasons for granting
relief without awaiting a full adversarial hearing
are set forth adequately in the papers as supplemented
by the inventory record and the argument today.
The Illinois in -person hearing is six days away.
The existing TRO in Illinois expires in nine
days and the time required to schedule and conduct
a contested preliminary injunction hearing before
this Court makes it impossible to provide the
claimants with full advance notice and a response
period before April 1, while still giving this
Court's order any practical effect. These circumstances
provide the basis required by Rule 65B1B for
acting on shorter notice and ordinarily would
be required. and I know that Council for the
Claimants has appeared today and they have been
heard and I've had the opportunity to consider
their arguments. I'm going to waive the requirement
of a bond under Rule 65C. These debtors are debtors
in possession of Chapter 11 and requiring a bond
would constitute a a drain on assets held for
the benefit of all creditors without a corresponding
benefit that I can see. Given that the harm to
the claimants from the TRO is minimal and any
claims they may have are fully preserved in the
claims process and particularly given the claimants
argument that the funds attributed to them are
held in trust and are not estate assets anyway.
That's an issue for another day, but it certainly
supports a finding that a bond is not required
So specifically my ruling is that I will enter
a temporary restraining order under section 105
and federal 60 civil procedure 65 B Pending a
hearing and determination on the debtors requests
for a preliminary injunction 154 8199 Alberta
limited and Robert J Bertram are enjoying from
Commencing continuing or otherwise prosecute
any action or proceeding against Nicholas Hammer
Gordon Wallace and Joseph Patrick Perry in connection
with the claims asserted against him in that
pre petition litigation. And any other litigation
that they may seek to bring. And when I talk
about the pre petition litigation, I'm again
talking about case number 26 dash CV dash 02451.
in the United States District Court for the Northern
District of Illinois. The scope of this order
is limited to the individual DNOs. I'm going
to schedule a preliminary injunction hearing
under Rule 65, assuming that the order gets entered
today, which is what I'm going to do. I have
to hold the hearing within 14 days. 14 days is
April 9th. So I'd suggest we get our calendars
out and decide on a date if you'd I'd ask the
debtors that though if they wish to Consult with
Council for the claimants offline on scheduling
them might make sense, too but My issue frankly
is that I have Extremely limited availability
the week of April 6th. In a pinch, I could give
you the afternoon of the 8th, but that's the
only date that I'm in Delaware that week. Your
Honor, with the party's agreement, can we do
it on the 16th? I'm just wondering because I
remember that Mr. Patterson said he had suggested
the 16th as a And I'm wondering if the party's
consent. Yeah, you've got your second day hearing
on the 16th. It's scheduled for 2 .30. I could
probably move it up a little earlier, but if
you think that gives you enough time to accomplish
everything, I know it's a few weeks out and a
lot can change. But if you think that it gives
enough time to handle everything, I'd certainly
be up for that. I think we've already cleared
that date with our management team, so to the
extent that Mr. Patterson is agreeable to that,
it seems to me that would make sense. Well, we'd
also frankly be responsive to Mr. Patterson's
concerns that these proceedings are leapfrogging
the motion for the relief from the automatic
stay, which as I understand, Mr. Gellert, Mr.
Patterson, that's scheduled for April 16th. Yes,
it is, Your Honor. So it also sounds like maybe
the fairest path forward if the parties are amenable
to the TRL lasting until the 16th, varying from
what the rule requires. Well, certainly it's
acceptable to the debtors. I'll have to let Mr.
Patterson speak for himself. Is that acceptable,
Mr. Patterson? Your Honor, my only concern is
if we're going to have an evidentiary hearing
that I assume If we take longer than the 16th,
that you've got the 17th available too, and I
don't want to be presumptuous as to what your
schedule is. Yeah, sure. We'd make the time for
you without having to come back to Delaware.
Then I would certainly adhere to what I said,
what I told the court earlier. I would request,
if I can, that the status quo be maintained as
to our Bitcoin and cash, that is that it will
not be accessed or used. in the interim before
we have this preliminary injunction hearing.
I think that the cash collateral order don't
authorize them to do it, but I believe in belt
and suspenders in certain circumstances and I
don't want to face something where somebody has
done something that minimizes or eliminates my
ability to trace the Bitcoin in cash. Mr. Hurst,
any response to that or do you want to check
with your colleagues before responding? Mean
I what I think this is like a really big case
issue, right? As long as the status quo is maintained
your honor, that's all I'm asking At this point,
yes So I'm not exactly sure what he says that's
what he means, but we'll comply with the cash
collateral order that's on I think that you may
have a difference of opinion on what the cash
collateral order requires or doesn't require,
and whether it's his res or he has any kind of
special interest that I'm not aware of, then
he can come forward with that. But we'll comply
with the current order that's on file. Okay.
Mr. Geller? Your Honor, I stand because I don't
think the cash collateral order really gets too
far into this particular issue. So for them standing
behind the cash collateral order doesn't really
address Mr. Patterson's question. Your Honor,
with respect to Mr. Patterson, he gave his interpretation
of the cash file order and is asking for something
outside of the scope of what this proceeding
is about. So if he wants to make a motion about
traceability of his assets, and he thinks he
can do that, then maybe he should. But I don't
think this is the right appropriate venue for
that discussion. The question then I would have,
Your Honor, is when can we be heard on our TRO?
Well, you haven't filed it yet. I'm saying, you
know, that's what we have. that's what we would
have to do then, if they're not going to stand
by the idea that they're not going to dissipate
the race. I'm not going to make any findings
of whether the race exists or not. Understood.
What I will order is continuing compliance with
all the debtor's obligations as a debtor in possession,
including among other things compliance with
any orders of this court. Okay. I've reviewed
the form of order. And it does, unless you discerned
any differences, I think it syncs up with the
relief that I've ordered here on the record today.
So I'd be prepared to enter that order if it's
uploaded. Okay, Your Honor. So I will upload
that order. I'll put in the April 16th hearing
date. We have to figure out an objection deadline.
I'd like to line that up with the objection deadline.
for lift stay motion, which right now is the
6th. It might make sense to move that deadline
more to the 9th, so that our objection to the
lift stay would be due on the 9th, and Mr. Patterson's
objection to the briefing with respect to the
preliminary injunction would also be due on the
9th, let's say at 4 o 'clock. That would be my
proposal. Well, I'm certainly okay with that,
Mr. Patterson, Mr. Geller. I'm fine with that,
Judge. Okay, thank you. So just for the purposes
of clarity, the hearing on the 16th on the stay
relief motion will be an evidentiary hearing.
So we'll go forward with all those issues. on
the same day, the preliminary injunction and
the state relief motion. Okay. Now you had said
that maybe you'd want to move it up from 230
or should we just say 230 and we'll see? Why
don't you see how it looks like things are shaking
out for that hearing and if we need to move it
up, you know, I may be able to move it up a half
hour or even an hour, but why don't you check
in with chambers maybe towards the beginning
of the week of the 13th. If we can move it or
we will and if you think, but if you think that
would be enough time then we can keep it how
it is. Is that all right? No, that makes sense,
Your Honor. And so when I upload the order it
will say April 16th at 2 .30 and then I'll check
in with chambers and we'll see. Okay. Yes, please.
Thank you. Okay. Is there anything else for me
today? Nothing. Okay. I appreciate the party's
thoughtful arguments on this and I'll look forward
to seeing everybody back on the... The 16th.
I think I'll see you sooner. Isn't there a second?
Yes. Next week? 30th of the 31st. We have the
cash collateral interim, second interim. Yes,
cash collateral. Yes. So I'll look forward to
seeing everybody on Tuesday then. Okay. Thank
you. Thank you, Your Honor. We're adjourned.