July 22, 2021

VIA U.S. MAIL AND E-MAIL

Douglas B. Anderson
Assistant Attorney General
Office of Attorney General
500 North 9th Street
Bismarck, ND 58501-4509
dbanders@nd.gov

Re: In re Racing Services, Inc.

Case No.: 04-30236
Litigation Hold Letter

Dear Mr. Anderson:

As you are aware, we represent Susan Bala and RSI Holdings, Inc. (together, “Bala”), in the above
captioned bankruptcy case. Bala is both an unsecured creditor in the bankruptcy case and the sole
equity holder of the debtor, Racing Services, Inc. (“RSI”).

We are investigating claims against the State of North Dakota (the “State”) and to the extent
appropriate, its counsel, under 28 U.S.C. § 1927,1 11 U.S.C. § 105,2 Rule 80203 of the Federal
Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Bankruptcy Rule 90114.

1
“Any attorney or other person admitted to conduct cases in any court of the United States
or any Territory thereof who so multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally the excess costs, expenses, and
attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. § 1927; see also In re
Royal Manor Mgmt., Inc., 525 B.R. 338 (B.A.P. 6th Cir. 2015); In re Prosser, 777 F.3d 154 (3d
Cir. 2015).
2
Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991).
3
“If the district court or BAP determines that an appeal is frivolous, it may, after a
separately filed motion or notice from the court and reasonable opportunity to respond, award
just damages and single or double costs to the appellee.” Fed. R. Bankr. P. 8020; see also In re
Schachtele, 343 B.R. 661, 666 (B.A.P. 8th Cir. 2006).
4
In re Young, 789 F.3d 872, 881 (8th Cir. 2015).
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Page 2

This investigation is based on the following, non-exclusive, list of the actions taken

• The State’s decision to file its new proof of claim only after the Court denied the claims
filed by PW Enterprises, Inc. (“PWE”) and Robert Carlson, leaving money available
for Bala;

• The State’s entry into the “Intercreditor” Agreement (the “Agreement”) dated
December 21, 2018, with PWE in which the State agreed to split any recovery on its
new claim with PWE and PWE agreed to split any recovery on its amended claim with
the State;

• The State’s collusion with PWE in its active misrepresentation to the Court of its
interests after the Agreement was entered, including describing its interest as being
limited to protecting its appellate interest and/or being “officers of the court”;

• The State’s failure to disclose the existence of the Agreement prior to the evidentiary
hearing on May 30, 2019, and then only upon direct questioning from the Court during
the hearing;

• The State’s calling Martin Foley as its sole witness without disclosing the Agreement,
thereby seeking to hide his obvious financial biases from the Court and the other
parties;

• The State’s filing of an “amicus brief” in support of PWE’s appeal [Appeal Docket No.
29] while failing to disclose its interest in PWE’s appeal based on the Agreement as
required by Fed. R. App. P. 29(a)(4)(D);

• The State’s originally-filed proof of claim [Claim No. 51], which asserted a claim on
behalf of the State in direct contradiction of the release of claims contained in the
settlement between the State and the bankruptcy estate [Docket No. 739];

• After the chapter 7 trustee and Bala objected based on the settlement agreement, the
State’s offering of a new legal theory without actually amending its claim that it was
asserting the claim under “ex rel” authority [Docket No. 969], which had no basis under
North Dakota law and continued to contradict the release provided by the State in the
settlement agreement;

• The State’s admission at the April 24, 2019, hearing that it filed the proof of claim
without discussing the claim with any charities and requesting additional time to get
“the consent or opt out from the various charities” [Docket No. 993], which raises the
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question whether the State and its counsel filed pleadings on behalf of parties it did not
represent;

• The State’s execution of a Consent and Assignment Agreement with Team Makers
Club, Inc. (“Team Makers”) on May 10, 2019, 20 days before the evidentiary hearing
on the State’s new proof of claim [Docket No. 977-2];

• The State’s refusal to produce documents requested by Bala, including the Agreement
and certain contracts in possession of the Racing Commission, despite relying on
similar documents for its proof of claim;

• The State continually changing its proof of claim prior to the evidentiary hearing;

• The State’s attempts to amend its proof of claim in the middle of the evidentiary
hearing, requests for additional time to put on evidence, and requests for additional
briefing to assert new arguments after the close of your evidentiary hearing [Docket
No. 998];

• The State’s filing of an amended proof of claim on October 6, 2020 [Claim No. 51-2],
hours before a scheduled status conference regarding the State’s proof of claim [Docket
No. 1062] without seeking leave from the Court;

• The State’s consistent failure to articulate a valid basis for its claim as evidenced by
the numerous contradictory arguments offered by the State in support of its claim;

• The State’s actions concerning the denial of RSI’s license renewal in 2003, the State’s
award of the license to a new service provider, the State’s award of subsequent licenses
to other service providers, and the State’s inconsistent positions regarding payments to
charities and the State’s actions in contradiction to the State’s statutes; and

• The State’s other actions throughout the bankruptcy case.

To that end, this letter requests your immediate action to preserve documents and electronic data
related to this bankruptcy case and the State’s dealings with RSI (the “Material”). To the extent
that normal records management practices would permit or require the disposal or deletion of any
Material related to this matter, those practices must be immediately suspended.

Material related to this matter may reside in your computer systems, removable electronic media
and other locations, including, but is not limited to e-mail and other forms of electronic
communication (text messages, instant messages), word processing documents, spreadsheets,
SharePoint and related file sharing applications, databases (including those hosted or serviced by
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third-party providers), calendars, voicemails and other voice recordings, Internet usage files, and
network access information. Please retain all files in their original (native) format. You must also
switch off any automatic deletion of files, emails, and other electronically stored information.

The following are examples of Material that must be preserved until the conclusion of the bankruptcy
case, whether in paper or electronic form:

• All external communications since 2003 with PWE, counsel for PWE, the Trustee,
counsel for the Trustee, Team Makers, counsel for Team Makers, and any other third
parties concerning this bankruptcy case.

• All external communications from the Office of Attorney General to any member of
the legislature (or his or her staff) regarding the settlement payment to the bankruptcy
estate.

• All internal communications since 2003 related to Bala, the settlement negotiated with
PWE and the Trustee dated May 12, 2017 [Docket No. 739], the funding of the
settlement payment to the bankruptcy estate, the bankruptcy court’s denial of PWE’s
proof of claim, the State’s new proof of claim [Claim No. 51], the filing of the State’s
amicus brief in the appeal of the denial of PWE’s proof of claim [App. Docket No. 29],
the Agreement between the State and PWE, and the State’s appeals of the denials of its
new proof of claim.

• Documents and communications (i.e., e-mails, memos, faxes, voicemails, text

messages, and instant messages on company issued phones) since 2003 related to Bala
or RSI, the settlement negotiated with PWE and the Trustee dated May 12, 2017
[Docket No. 739], the funding of the settlement payment to the bankruptcy estate, the
bankruptcy court’s denial of PWE’s proof of claim, the State’s new proof of claim
[Claim No. 51], the filing of the State’s amicus brief in the appeal of the denial of
PWE’s proof of claim [App. Docket No. 29], the intercreditor agreement between the
State and PWE, and the State’s appeals of the denials of its new proof of claim.

• Other potential documents relevant to the claims and defenses described above (i.e.,
excel spreadsheets, PowerPoint presentations, and documents on network file shares
(i.e.,Sharepoint sites), document management systems, Office 365, and other hosted
storage providers)

• Internal memos since 2003 regarding Bala or RSI, the settlement negotiated with PWE
and the Trustee dated May 12, 2017 [Docket No. 739], the funding of the settlement
payment to the bankruptcy estate, the bankruptcy court’s denial of PWE’s proof of
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claim, the State’s new proof of claim [Claim No. 51], the filing of the State’s amicus
brief in the appeal of the denial of PWE’s proof of claim [App. Docket No. 29], the
intercreditor agreement between the State and PWE, and the State’s appeals of the
denials of its new proof of claim.

• Any and all agreements with PWE, the Trustee, or any other party in interest in the
bankruptcy case.

• All documents, communications, internal memos, and notes regarding the renewal of
RSI’s license, the granting of the license to a new service provider in 2003, the State’s
position regarding the taxes assessed against other service providers prior to 2007, and
the State’s position regarding payments from services providers to charities.

The examples provided herein are merely provided as examples and in no way limit the Material
that you must preserve in connection with potential claims under 28 U.S.C. § 1927, 11 U.S.C. § 105,
Bankruptcy Rule 8020, and Bankruptcy Rule 9011. This Preservation Demand Notice applies not
only to all past communications and documents already created, but also to any future
communications and/or new documents you create or receive in the future, regardless of format.
Nothing contained in this Preservation Demand Notice shall be construed as a limitation on the
State’s responsibilities to manage and retain records under North Dakota law, including, without
limitation, N.D. Cent. Code § 54-46-07, and nothing contained herein shall constitute a waiver of
any claim against the State under any such applicable law to the extent the State destroyed or
otherwise misplaced any such record.

If this correspondence is in any respect unclear, please do not hesitate to contact me in writing.

Sincerely,

/e/ Steven R. Kinsella

Steven R. Kinsella
Direct Dial: 612.492.7244
Email: skinsella@fredlaw.com

cc: Michael Raum (via e-mail)

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