In re Markus

In re: LARISA MARKUS, Debtor in a Foreign Proceeding.

Case No. 19-10096 (MG)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

October 23, 2019

FOR PUBLICATION

Chapter 15

MEMORANDUM OPINION AND ORDER GRANTING THE MARKUS FOREIGN REPRESENTATIVE'S TURNOVER MOTION AND DENYING CROSS-MOTION TO VACATE FREEZE ORDER

APPEARANCES:

MARKS & SOKOLOV, LLC

Attorneys for Yuri Vladimirovich Rozhkov in his Capacity

as Trustee and Foreign Representative for the Foreign Debtor Larisa Markus

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, NY 10017

By: Gerard DiConza, Esq.

Lance A. Schildkraut, Esq.

LAW OFFICES OF VICTOR A. WORMS

Attorneys for Foreign Debtor Larisa Markus

48 Wall Street, Suite 1100

New York, NY 10005

By: Victor A. Worms, Esq.

LAW OFFICES OF DANIEL A. SINGER PLLC

Attorneys for LM Realty 31B, LLC; LM Realty 27D, LLC;

LM Realty 24C, LLC; LM Realty 23H, LLC;

LM Realty 20A, LLC; LM Realty 18 West, LLC;

The Larisa Markus Revocable Trust; The Larmar Foundation;

Protax Services Inc.; Protax Services Consulting, Inc.;

Ilya Bykov,·First Integrated Construction, Inc.; and

Innovative Construction Group, Inc.

630 Third Avenue, 18^th Floor

New York, New York 10017

By: Daniel A. Singer, Esq.

MARTIN GLENN UNITED STATES BANKRUPTCY JUDGE

This Opinion and Order resolves two motions for the reasons explained below. The Foreign Representative's Emergency Motion to Enforce the Recognition Order and Entrust the Assets of Larisa Markus Revocable Trust to the Administration of the Foreign Representative is GRANTED ("Turnover Motion," ECF Doc. # 81-12); and the LM Entities and Protax Entities' Cross-Motion to Vacate the Freezing Order is DENIED ("LM/Protax Cross-Motion," ECF Doc. ## 124, 125 and 126).

As part of this ruling, the Court (i) confirms the Foreign Representative's revocation of the LM Trust on May 27, 2019, (ii) concludes that the turnover dispute can properly be resolved on the Foreign Representative's turnover motion, rather than by requiring an adversary proceeding, and without requiring an evidentiary hearing because there are no disputed issues of material fact, and (iii) orders the turnover to Foreign Representative of U.K. Proceeds from the sale of the London property (explained below) of Larissa Markus ("Markus"), the foreign debtor in this case. The proceeds are held in New York in the accounts of the LM Trust and of 550 Park Avenue.

I. BACKGROUND

The background of this chapter 15 case ("Markus Case," Case No. 19-10096 (MG)), and in the related chapter 15 case of Foreign Economic Industrial Bank, Ltd. ("Bank Case," Case No. 16-13534 (MG)), has been described at length in several recent opinions. See In re Foreign Econ. Indus. Bank Ltd., Case No. 16-13534 (MG), 2019 WL 4943752 (Bankr. S.D.N.Y. Oct. 8, 2019) ("Opinion Denying Motions to Vacate Recognition"); In re Markus, Case No. 19-10096 (MG), 2019 WL 5257902 (Bankr. S.D.N.Y. Oct. 16, 2019) ("Opinion Imposing Sanctions onMarkus' Counsel"). Familiarity with those opinions is assumed. Only the facts relevant to the pending motions will be discussed in this Opinion.

On April 1, 2019, in the Markus Case, Judge Vyskocil granted the Foreign Representative's motion for recognition of a foreign main proceeding.¹ The Russian insolvency proceeding against Markus had been initiated by Bank VTB 24, a creditor of Markus, on April 19, 2016. 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. See Opinion Denying Motions to Vacate Recognition, at *1. By the same judgment, the Moscow Arbitrazh Court appointed the Markus Foreign Representative as Markus' financial administrator to preside over the liquidation. Id. One of the effects of the recognition orders in the Bank Case and in the Markus Case was to impose the automatic stay against any transfers of property of the Russian bankruptcy estates of those foreign debtors within the territorial jurisdiction of the United States.

On October 8, 2019, I denied Markus' motions to vacate the recognition orders in the Markus Case and in the Bank Case. See Opinion Denying Motions to Vacate Recognition. Markus, the foreign debtor in this case, is serving a long jail sentence in Russia based on her guilty plea for having embezzled approximately $2 billion from Foreign Economic Industrial Bank, Ltd. ("Bank"), the foreign debtor in the Bank Case.

Markus is alleged to have very substantial assets secreted around the world, including in the United States. The Foreign Representative has been trying to identify and locate the assets, and to recover them for the benefit of Markus' Russian bankruptcy estate. Markus, her agents and attorneys, in the U.S. and elsewhere, have resisted the Foreign Representative's efforts toidentify and recover the assets. Some of Markus' agents have also engaged in, assisted or facilitated a series of asset transfers designed to make it more difficult for the Foreign Representative to recover the assets. Most recently, the Court imposed sanctions of $1,000 per day on Markus' counsel in this case for stonewalling in discovery, until he complies with outstanding discovery orders. See Opinion Imposing Sanctions on Markus' Counsel, at *1.

The Foreign Representative learned that Markus holds millions of dollars in assets in the United States in the The Larisa Markus Revocable Trust ("LM Trust"), a revocable trust established by Markus in 2011 that is governed by New York law. The Turnover Motion concerns the Foreign Representative's effort to recover over $5 million in proceeds from the sale of Markus' London Property that was transferred to the LM Trust in New York. Markus and Ilya Bykov, a New York resident, are co-trustees of the LM Trust. Markus also provided Bykov with her power of attorney. See id. at *2.

Bykov, in addition to holding Markus' power of attorney and being a co-trustee of the LM Trust, is Markus' accountant. He also operates other entities that are involved in this case and that have resisted the Foreign Representative's turnover motion—LM Realty 31B, LLC; LM Realty 27D, LLC; LM Realty 24C, LLC; LM Realty 23H, LLC; LM Realty 20A, LLC; LM Realty 18 West, LLC; The Larmar Foundation; Protax Services Inc.; Protax Services Consulting, Inc.; First Integrated Construction, Inc.; and Innovative Construction Group, Inc. (collectively, the "LM Entities"). Bykov, the LM Trust and the LM Entities are all represented by Daniel A. Singer, Esq. ("Singer"). Bykov, the LM Trust and the LM Entities, through Singer, have resisted discovery in the Markus Case. Bykov has also engaged in several ham-handed efforts to transfer Markus' assets in the United States to make it more difficult for the Foreign Representative to recover the property.

A. The Turnover Dispute

On May 20, 2019, a letter from JPC Law on behalf of Markus, revealed that Markus' real property in the U.K. was sold for $5,286,594.99 (the "U.K. Proceeds") and that the sale proceeds were transferred to the New York bank account of the LM Trust. (Turnover Motion, ECF Doc. # 81-12 at 9.) On May 24, 2019, Bykov allegedly caused $3 million of the U.K. Proceeds to be transferred from the LM Trust to the bank account of 550 Park Avenue LLC ("550 Park"), another entity owned by Markus. ("Turnover Reply," ECF Doc. # 133-2 at 11.) On May 27, 2019, upon learning of the transfer, the Foreign Representative executed a document revoking the LM Trust (the "First Revocation"). (Turnover Motion, ECF Doc. # 81-12 at 10.) The First Revocation was signed by the Foreign Representative; however, it was not witnessed. (See First Revocation, ECF Doc. # 81-12 at 24.)

On May 29, 2019, Judge Vyskocil entered an order (i) requiring Singer to disclose the location of the U.K. Proceeds, and (ii) prohibiting any further transfers of those proceeds. ("Markus Freeze Order," ECF Doc. # 57.) That same day Singer filed a letter stating that "monies pertaining to the sale of the referenced property in the United Kingdom are currently in the Larisa Markus Revocable Trust Account at Chase in an account titled 550 Park Avenue, LLC at Citibank." ("Singer Letter," ECF Doc. # 58.)

On July 10, 2019, the Foreign Representative filed the Turnover Motion. (Turnover Motion, ECF Doc. # 81-12 at 8.) The Foreign Representative seeks, inter alia, an order (a) confirming revocation of the Larisa Markus Revocable Trust, (b) confirming the reversion of the LM Trust's assets and sale proceeds from Markus' U.K. property to the Foreign Representative, and (c) authorizing the Foreign Representative to administer such assets. (Id. at 10.)

The Turnover Motion is supported by the declaration of Bruce S. Marks, Esq. ("Marks"), counsel to Foreign Representative. (Id. at 1.) Marks states that he and the Bank's foreign representative served subpoenas on the LM Entities and the LM Trust, requiring them to disclose all of Markus' assets. ("Marks Letter," ECF Doc. # 51-1.) The LM Trust is a revocable trust established by Markus on February 14, 2011 under New York law. ("Marks Declaration," ECF Doc. # 81-12 at 3.) On April 15, 2011, the LM Trust was amended and Ilya Bykov and Markus became co-trustees of the LM Trust. (Id. at 5.)

On September 8, 2019, the Foreign Representative executed a second document revoking the LM Trust ("Second Revocation"). (Second Revocation, ECF Doc. # 133-2 at 2.) The Second Revocation is signed by the Foreign Representative and two witnesses, Sergey S. Sokolov and Ksenia Polyakova.² (Id.)

The Foreign Representative submits that the LM Trust was properly revoked. (Turnover Reply, ECF Doc. # 133-1 at 14.) Pursuant to the terms of the LM Trust, Markus (its Grantor) had the "right to revoke" the LM Trust, and upon revocation, the LM Trust's assets revert to Markus under New York law. (Marks Declaration, ECF Doc. # 81-12 ¶ 9.) The Foreign...