Markus v. Rozhkov

• Decision Date: 03 April 2020
• Docket Number: 19-cv-10781 (LJL),19-cv-09611 (LJL)
• Citation: 615 B.R. 679
• Parties: Larisa Ivanovna MARKUS, Appellant, v. Yuri Vladimirovich ROZHKOV, Appellee.
• Court: U.S. District Court — Southern District of New York

615 B.R. 679

Larisa Ivanovna MARKUS, Appellant,

v.Yuri Vladimirovich ROZHKOV, Appellee.

19-cv-10781 (LJL)

19-cv-09611 (LJL)

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

Signed April 3, 2020

Victor A. Worms, Law Offices of Victor A. Worms, New York, NY, for Appellant.

Bruce S. Marks, Marks & Sokolov, L.L.P., Philadelphia, PA, Evan Jason Zucker, Blank Rome LLP, Gerard DiConza, Archer & Greiner, P.C., Ira Lawrence Herman, Thompson & Knight, LLP, New York, NY, Philip Michael Guffy, Hunton Andrews Kurth LLP, Houston, TX, for Appellee.

OPINION & ORDER

LEWIS J. LIMAN, United States District Judge:

Victor A. Worms ("Worms"), as counsel for debtor Larisa Ivanovna Markus ("Markus") in a Chapter 15 proceeding, appeals the Bankruptcy Court's orders imposing sanctions on him and awarding fees to his opposing counsel. For the following reasons, the Bankruptcy Court's sanctions and fees orders are affirmed in part and vacated in part. Both orders are remanded for further proceedings.

I. FACTUAL BACKGROUND

Larisa Ivanovna Markus is a Russian citizen. BK-ECF 2 at 2.¹ From 1995 through 2016, she served as president of Vneshprombank, formerly one of Russia's largest banks. Id. at 3. In 2016, the Moscow Arbitration Court declared Vneshprombank insolvent and commenced a bankruptcy proceeding. In re Foreign Econ. Indus. Bank Ltd., "Vneshprombank" Ltd. , 607 B.R. 160, 163 (Bankr. S.D.N.Y. 2019).² In 2017, following a criminal conviction and appeal in Russian courts, Markus received an eight-and-a-half year prison sentence for large-scale fraud. BK-ECF 5-4, 5-5. According to the judgment of conviction, Markus "creat[ed] an organized criminal group from the Bank's employees and other persons," with the intent to "steal a significant amount of funds from the Bank." BK-ECF 5-4 at 29. Her role in the enterprise was, inter alia , "to find trusted persons and promote them to executive positions in the governing bodies of the Bank; ... to plan the obtaining and further distribution of criminal proceeds, including outside of the Russian Federation; [and] to take action aimed at fostering the trust of the individuals who were the Bank's clients." Id. at 3–4.

Approximately one month after the Moscow Arbitration Court declared Vneshprombank insolvent, one of Markus's creditors applied for commencement of a personal bankruptcy proceeding against Markus. BK-ECF 6 at 2. That application was granted. Id. The Moscow Arbitration Court appointed Yuri Vladimirovich Rozhkov as Markus's financial administrator. Id. In May 2017, the Moscow Arbitration Court initiated a procedure to liquidate Markus's assets and appointed Yuri Vladimirovich Rozhkov to preside over the liquidation. Id. Under Russian Bankruptcy Law, Yuri Vladimirovich Rozhkov is responsible for pursuing actions against persons or entities that contributed to Markus' insolvency. Id.

On January 10, 2019, Yuri Vladimirovich Rozhkov, proceeding as Markus's Foreign Representative (hereinafter, "FR"), filed a Verified Petition Under Chapter 15 for Recognition of Foreign Main Proceeding in the United States Bankruptcy Court for the Southern District of New York ("Chapter 15 Petition"). BK-ECF 2. The FR's declaration in support of the Chapter 15 Petition explained that he intended to "seek discovery concerning Ms. Markus' assets which might be located in the United States." BK-ECF 6 at 6. On April 1, 2019, the Bankruptcy Court entered an order granting Chapter 15 recognition of the insolvency proceeding against Markus. BK-ECF 29.

Discovery issues began almost immediately. See BK-ECF 45 at 65 (FR's counsel referencing "a host of discovery disputes" at a hearing on April 11, 2019). In early May, counsel for the FR (hereinafter, "the FR") asked the Bankruptcy Court to hold a conference regarding discovery. BK-ECF 52. The Bankruptcy Court granted the request, setting a conference for May 29, 2019. Id. The day before the conference, Victor A. Worms filed an appearance on behalf of Markus. BK-ECF 55. By letter dated May 28, 2019 (but docketed May 29, 2019), Worms advised that he intended to file a motion to vacate the recognition order, and he requested a stay of all proceedings pending a ruling on that motion. BK-ECF 56.³

The conference proceeded as scheduled on May 29, 2019. Soon after it began, Worms orally requested "an interim stay of the discovery issues" in light of the "extraordinary nature" of the proceedings. BK-ECF 59 at 13. The details of Worms's position on the recognition order are not at issue in this appeal; in brief, he asserted that the Bankruptcy Court lacked jurisdiction at the time it entered the recognition order and that Markus had suffered due process violations. Id. at 11. The Bankruptcy Court declined to entertain those arguments at that time, noting, "[W]e are now here for a discovery conference," but the Bankruptcy Court assured Worms that it would take up those arguments if Worms brought "a proper motion." Id. at 12–13.

The Bankruptcy Court then heard argument on various discovery issues. Summarizing the landscape, the Bankruptcy Court discerned "a little bit of exaggeration going on both sides"; while the FR was inaccurate to complain that he had received "nothing," there was "clearly, clearly a pattern of not complying with ... discovery obligations" on the part of certain Markus-related entities. Id. at 29. Ultimately, the Bankruptcy Court ordered counsel for certain entities to make a production that day. Id. at 32. Worms objected, arguing that he needed to see "any production relating to" Markus. Id. The Bankruptcy Court refused to delay the production, despite Worms's protestation that he "only got involved in the case yesterday." Id. On June 18, 2019, Worms filed a motion to vacate the recognition order. BK-ECF 70.

On June 24, 2019, the FR emailed Worms with a proposed subpoena and an invitation to meet and confer the following day. BK-ECF 79-3 at 2. Worms responded:

As we say in the Yiddish, you have real chutzpah sending me this proposed subpoena especially since I have maintained all along, and have documented, that this Chapter 15 proceeding is completely illegitimate, and the Recognition Order entered by the Bankruptcy Court is null and void.

Therefore, I will not be meeting and conferring with you concerning the proposed subpoena because it is my unshakable intention to move to quash the subpoena at the earliest possible moment, but in all events prior to the subpoena's return date of July 8, 2019.

You and your law firm were successfully able to bamboozle an inattentive judge in signing a recognition order and to permit blunderbuss discovery in this proceeding. However, the days of you and your firm running amok in this proceeding are over. I look forward to seeing you in court at the next court appearance.

BK-ECF 83-2 at 3.

The next day, the FR served the subpoena on "Larisa Markus, c/o Victor A. Worms," which commanded production by July 9, 2019. BK-ECF 79-2 at 2 (the "Subpoena"). According to the FR, the purpose of the Subpoena was to "uncover what happened to the two billion dollars that she pled guilty to embezzling." BK-ECF 160 at 64. The FR issued the Subpoena pursuant to Federal Rule of Civil Procedure 45. BK-ECF 79-2.

The Subpoena made twenty-one requests for documents, including, for example:

1. All engagement letters of Markus with counsel, including but not limited to:

a. Counsel in the United States:

i. the Law Offices of Victor A. Worms;

...

3. All "Powers of Attorney" executed by Markus or concerning a Markus Asset.

4. All communications between Markus and [Ilya] Bykov.

...

9. All documents—including, but not limited to bank statements, checks, accounting, account opening documents—evidencing bank accounts in which Markus has an interest (direct or indirect).

BK-ECF 79-2 at 1–2. The Subpoena's "Instructions" specified that the "Subpoena shall apply to all documents that you, or any of your present or former agents, attorneys, assigns, consultants, employees, and/or successors possess, control or can access in the ordinary course of business." Id. at 9.

Between June 25, 2019 and July 9, 2019, Worms seems to have made no effort to obtain responsive documents. On July 9, 2019, Worms filed a motion to quash the Subpoena. BK-ECF 79-1. The motion argued that "[t]he subpoena should be quashed because it is predicated upon a Recognition Order which is null and void; the subpoena is procedurally deficient; it is impossible for the debtor to comply with the subpoena because she is presently incarcerated in a Russian prison and the subpoena is overly burdensome." Id.

On July 10, 2019, the FR filed a Declaration from Sergey Sokolov, Russian legal counsel to the FR. BK-ECF 81 (the "First Sokolov Declaration"). It stated that Markus had "issued a power of attorney to Mr. Ilya Bykov and Ms. Elena Artemyeva to represent her before third parties, including Russian and foreign courts, with, inter alia , the right to represent Ms. Markus in bankruptcy proceedings." Id. at 2. Attached to the First Sokolov Declaration was the Power of Attorney itself, on official letterhead. BK-ECF 81-2.

The next day, the FR requested a discovery conference on the motion to quash and noted that "Mr. Worms did not meet and confer on [the] motion before filing it." BK-ECF 82 at 2. Worms responded with a request for the Bankruptcy Court to refer the case to mediation, conditional on document production being stayed pending the mediation's outcome. BK-ECF 83 at 4. Worms called it "especially noteworthy" that the FR had accused Worms of not meeting and conferring before filing the motion, because that was "simply untrue." But see BK-ECF 83-2 at 3 (Worms email to the FR stating, "I will not be meeting and conferring with you concerning the proposed subpoena because it is my unshakable intention to move to quash the subpoena at the earliest possible moment....") The Bankruptcy Court scheduled a case management conference for July 23, 2019. BK-ECF 84.

At the conference, Worms argued that the Bankruptcy Court could not...