In re Foreign Econ. Indus. Bank Ltd.

607 B.R. 160

IN RE: FOREIGN ECONOMIC INDUSTRIAL BANK LIMITED, "VNESHPROMBANK" LTD. Debtor in a Foreign Proceeding.

In re: Larisa Markus, Debtor in a Foreign Proceeding.

Case No. 16-13534 (MG)

Case No. 19-10096 (MG)

United States Bankruptcy Court, S.D. New York.

Signed October 8, 2019

LAW OFFICES OF VICTOR A. WORMS, Attorneys for Debtor Foreign Economic Industrial Bank, Ltd, "Vneshprombank" Ltd. in the Bank Case and Attorneys for Debtor Larisa Markus in the Markus Case, 48 Wall Street, Suite 1100 New York, NY 10005, By: Victor A. Worms, Esq.

MARKS & SOKOLOV, LLC, Attorneys for Yuri Vladimirovich Rozhkov in his Capacity as Trustee and Foreign Representative for the Debtor in the Markus Case and Attorneys for State Corporation "Deposit Insurance Agency" in its Capacity as Trustee and Foreign Representative for the Debtor in the Bank Case, 1835 Market Street, 17th Floor Philadelphia, PA 19103, By: Bruce S. Marks, Esq. Nina Farzana Khan, Esq., and ARCHER & GREINER, P.C., 630 Third Avenue New York, New York 10017, By: Gerard DiConza, Esq. Lance A. Schildkraut, Esq.

MEMORANDUM OPINION AND ORDER DENYING MOTIONS TO VACATE RECOGNITION AS FOREIGN MAIN PROCEEDINGS

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Pending before the Court in each of these two chapter 15 cases are motions to vacate prior orders entered by Judge Vyskocil recognizing each of the underlying Russian foreign proceedings as a foreign main proceeding. For ease of reference, the Court will refer to these two cases as the "Markus Case" and the "Bank Case." (See "Markus Motion to Vacate," Markus Case , ECF Doc. # 70; "Bank Motion to Vacate," Bank Case , ECF Doc. # 106). On June 24, 2019, both cases were transferred to me. Both motions were filed by attorney Victor Worms ("Worms"). Worms represents Larisa Markus, the foreign debtor in the Markus Case. Worms claims that he represents the Bank in the Bank Case, but the Foreign Representative in the Bank Case disputes that Worms was ever authorized to represent Foreign Economic Industrial Bank, Ltd. ("Bank") in the Bank Case.¹ The Court will assume without deciding for purposes of this decision only that Worms represents the Bank in connection with the Bank Motion to Vacate. Both motions raise substantially similar arguments and both motions are resolved in this Opinion.

For the reasons explained below, the Markus Motion to Vacate and the Bank Motion to Vacate are DENIED.

I. BACKGROUND

On March 11, 2016, on application of the Central Bank of Russia, the Moscow Arbitration Court declared the Bank insolvent and commenced a bankruptcy proceeding under the Russian Federation Federal Law No 127-FZ "On Insolvency (Bankruptcy)" (the "Russian Bankruptcy Law"). ("Bank Russian Insolvency Proceeding".) The Arbitration Court appointed the State Corporation "Deposit Insurance Agency" ("DIA" or "Bank Foreign Representative") as the trustee for the Bank. Thereafter, in accordance with Russian Bankruptcy Law, the DIA on March 16, 2016 sent a report to the Moscow Arbitration Court designating Korzhenkova Natalia Igorevna as the authorized representative, with power of attorney, to act on behalf of the DIA in respect of the Russian Insolvency Proceeding. (Russian Counsel Declaration at Ex. C, ECF Doc. # 5-3.) On November 10, 2016, the DIA sent a report to the Moscow Arbitration Court indicating that as of November 7, 2016 Khalizev Aleksandr Victorovich succeeded Korzhenkova as the authorized representative to act on behalf of the DIA in respect of the Russian Insolvency Proceeding.

On December 19, 2016, the DIA filed a Verified Petition Under Chapter 15 for Recognition of Foreign Main Proceeding. ("Bank Petition," Bank Case , ECF Doc. #1.)

On April 19, 2016, Bank VTB 24, a creditor of Markus, filed an application for the commencement of a personal bankruptcy proceeding against Markus under the Russian Bankruptcy Law. The application for commencement was granted on April 22, 2016, by the Moscow Arbitrazh Court. On October 18, 2016, the Moscow Arbitrazh Court entered an order granting the application of Bank VTB 24, initiating a debt restructuring procedure in respect of Markus and appointing the Markus Foreign Representative as Markus' financial administrator (the "Commencement Order"). On May 25, 2017, the Moscow Arbitrazh Court determined that there was no evidence that Markus was eligible for a restructuring of debts and that there was evidence that Markus is bankrupt and initiated a procedure to liquidate her assets. By the same judgment, the Moscow Arbitrazh Court appointed the Markus Foreign Representative as Markus' financial administrator to preside over the liquidation.

On January 10, 2019, Yuri Vladimirovich Rozhkov ( "Markus Foreign Representative"), the financial administrator and foreign representative of Larisa Markus (the "Debtor" or "Markus") in Markus' pending insolvency proceeding (the "Markus Russian Insolvency Proceeding") under the Russian Federation Federal Law No 127-FZ "On Insolvency (Bankruptcy)" (the "Russian Bankruptcy Law"), filed a Verified Petition Under Chapter 15 for Recognition of Foreign Main Proceeding. ("Markus Petition," Markus Case , ECF Doc. # 2.) Markus is a Russian citizen incarcerated in Moscow. (Id. ¶ 6.) The Markus Petition stated that venue was proper in the Southern District Bankruptcy Court because of two actions pending against Markus in this district: HSBC Bank USA, N.A. v. LM Realty 31B, LLC et al. , Case No. 850323/2018 (New York Sup. Ct. 2018) and BG Atlantic, Inc. v. Larisa Markus , Case No. 655892/2016 (New York Sup. Ct. 2017). (Markus Petition at 2.) Markus also owns assets in New York, including shares of a corporation registered in New York. The Markus Foreign Representative also has an unapplied attorney retainer that was held for the benefit of Markus' estate. (Id. ) The Markus Petition states that Markus does not have a place of business or assets in the United States. (Id. ) As will be discussed in resolving a separate pending motion, Markus in fact has substantial assets in New York as a result of a transfer of funds by Markus resulting from the sale of Markus' London apartment; the assets were transferred to and held in a New York bank account of a revocable trust for which Markus was the settlor.

On May 27, 2019, the Markus Foreign Representative took steps to terminate the revocable trust; Worms disputes that the termination was effective, an issue that will be dealt with in a separate opinion. If the termination was effective, the trust assets reverted to Markus' bankruptcy estate, which the Foreign Representative seeks to recover in a pending turnover motion.

On May 28, 2019, Worms appeared as counsel for Markus in the Markus Case. (ECF Doc. # 55.) As a result of that notice of appearance, Markus, through Worms, has appeared generally in the Markus chapter 15 Case. As a result of Worms' appearance, Markus became a party to the Markus Case; Worms thereby became obligated to fulfill all responsibilities of counsel appearing in an any case in this Court. Worms' disregard of his professional responsibilities in respect of discovery undertaken on behalf of the Markus Foreign Representative has resulted in a substantial sanctions award against Worms. Markus and Worms have repeatedly violated orders entered in this case.

A. Recognition Was Granted in the Bank Case and the Markus Case

On February 10, 2017, Judge Vyskocil, before whom both the Markus Case and the Bank Case were pending before being transferred to me on June 24, 2019, held a hearing on the Verified Petition in the Bank Case . ("Recognition Hearing," Bank Case , ECF Doc. # 27.) The Court ruled that the Foreign Representative met the requirements for recognition pursuant to section 1517(a). (Id. at 19:1-11.) The Court noted that it received all required documentation, including the Sokolov Declaration. (Id. at 19:10-11.) On February 15, 2017, the Court entered an order granting recognition of the foreign main proceeding. ("Bank Foreign Main Proceeding Order," Bank Case , ECF Doc. # 24.)

On February 27, 2019, Judge Vyskocil held a hearing on the Verified Petition in the Markus Case . ("Recognition Hearing," Markus Case , ECF Doc. # 24.) At the hearing, the Foreign Representative's counsel stated that the Verified Petition was unopposed. (Id. at 14: 9-15.) The Sokolov and Rozhkov Declarations in support of the Verified Petition were offered and admitted into evidence and no one requested to cross-examine the declarants. (Id. at 18-25.) Sokolov was present at the hearing to be cross-examined, if there was an objection. (Id. at 15: 9-10.)

On April 1, 2019, Judge Vyskocil entered an order granting recognition and relief in aid of a foreign main proceeding pursuant to sections 105(a), 1517, 1520, and 1521. ("Recognition Order," Markus Case , ECF Doc. # 29.) The Court found that, pursuant to section 1514, appropriate and timely notice of the filing of the Petition and Hearing was given by the Foreign Representative, and that such notice was sufficient for all purposes, and no further notice was necessary or required. (Id. ¶ A.) The Court also found that all interested parties had an opportunity to be heard at the hearing. (Id. ¶ B.) Moreover, the Foreign Representative satisfied the requirements of section 1515 and Fed. R. Bankr. P. 1007(a)(4) because the Debtor is subject to a pending foreign proceeding under section 101(23), and the Russian Insolvency Proceeding is pending in Moscow, Russia where the Debtor's center of main interests is located. (Id. ¶ G(i)-(ii).) Accordingly, the Court found that the Russian Insolvency Proceeding is a "foreign main proceeding" under section 1502(4), and entitled to recognition as a foreign main proceeding pursuant to section 1517(b)(1). (Id. ¶ G(ii).) Lastly, the Court found that the chapter 15 case was properly commenced under sections 1504 and 1515, the Petition satisfies the requirements of section 1515, and recognition is not manifestly contrary to U.S. public policy. (Id. at (iv)-...