Worms v. Rozhkov (In re Markus)
| Docket Number | 21-2238 |
| Decision Date | 30 August 2023 |
| Parties | In Re: Larisa Ivanovna Markus, Debtor. v. Yuri Vladimirovich Rozhkov, Appellee. Victor A. Worms, Appellant, |
| Court | U.S. Court of Appeals — Second Circuit |
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In Re: Larisa Ivanovna Markus, Debtor.
Victor A. Worms, Appellant,
v.
Yuri Vladimirovich Rozhkov, Appellee.
No. 21-2238
United States Court of Appeals, Second Circuit
August 30, 2023
Argued: September 28, 2022
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
Appeal from two orders of the United States District Court for the Southern District of New York (Liman, J.), entered April 3, 2020, and September 9, 2021, affirming in relevant part orders of the United States Bankruptcy Court for the Southern District of New York (Glenn, J.) imposing civil contempt sanctions and awarding attorneys' fees against the debtor's attorney in a Chapter 15 proceeding. The district court held that the bankruptcy court has inherent authority to issue civil contempt sanctions, including per diem sanctions and attorneys' fees, arising out of a contemnor's failure to comply with the bankruptcy court's orders.
VICTOR A. WORMS, Law Offices of Victor A. Worms, New York, NY, for Appellant.
STEPHEN B. SELBST (Rachel H. Ginzburg, on the brief), Herrick, Feinstein LLP, New York, NY, for Appellee.
Before: JACOBS, CHIN, AND ROBINSON, Circuit Judges.
CHIN, Circuit Judge:
In this case, appellant Victor A. Worms, an attorney, represented the debtor Larisa Ivanovna Markus in proceedings before the United States Bankruptcy Court for the Southern District of New York (Glenn, J.). After
Worms failed to comply with a series of discovery orders, the bankruptcy court imposed sanctions of, inter alia, $55,000 for 55 days of non-compliance and $36,600 in attorneys' fees. The orders were affirmed by the United States District Court for the Southern District of New York (Liman, J.). Worms now appeals to this Court, arguing that, first, the bankruptcy court lacked inherent authority to issue civil contempt sanctions, and second, as a matter of due process, he was not provided with sufficient notice of the basis for the sanctions imposed against him. We affirm.
STATEMENT OF THE CASE
I. Background
Markus is a Russian citizen who was the founder of
Vneshprombank, Ltd. ("Vneshprombank"), one of Russia's largest banks. She served as its president from 1995 through 2016. On March 11, 2016, the Moscow Arbitration Court declared Vneshprombank insolvent and commenced bankruptcy proceedings against it. See In re Foreign Econ. Indus. Bank Ltd., 607 B.R. 160, 163 (Bankr. S.D.N.Y. 2019). Thereafter, on April 19, 2016, one of Markus's creditors applied to the Moscow Arbitration Court for commencement of bankruptcy proceedings against Markus personally. Id. The application was
granted on April 22, 2016, and the Moscow Arbitration Court appointed appellee Yuri Vladimirovich Rozhkov to preside over the liquidation of Markus's assets. Id. at 163-64. Under Russian bankruptcy law, Rozhkov is responsible for pursuing actions against persons or entities that contributed to Markus's insolvency.
On May 12, 2017, Markus was convicted in a Russian tribunal for embezzling approximately $2 billion from Vneshprombank. According to the judgment of conviction, Markus "creat[ed] an organized criminal group from the Bank's employees and other persons" "to steal a significant amount of funds from [Vneshprombank] . . . for purposes of personal enrichment.'" BK-Dkt. No. 5-4 at 7.[1] On August 15, 2017, Markus was sentenced to eight and a half years of imprisonment.
II. Proceedings Below
A. Commencement of the Chapter 15 Bankruptcy Proceeding
On January 10, 2019, Rozhkov, acting as Markus's Foreign Representative (the "FR"), filed a Verified Petition Under Chapter 15 for
Recognition of a Foreign Main Proceeding in the bankruptcy court below.[2] The Chapter 15 action was intended, inter alia, to "seek discovery concerning Ms. Markus' assets which might be located in the United States." BK-Dkt. No. 6 at 6. The FR supported its petition with declarations representing that Markus had substantial property in the United States; one declaration reported that Markus had formed at least ten companies in New York between 2005 and 2015 and had spent over $10 million between 2008 and 2015 to purchase eight apartments in Manhattan.
On April 1, 2019, the bankruptcy court granted Chapter 15 recognition of the Russian insolvency proceeding against Markus (the "Recognition Order"). See generally 11 U.S.C. §§ 1515-1524; In re Fairfield Sentry, 714 F.3d at 132-33.
B. Discovery Disputes
Discovery disputes arose almost immediately. Upon request from the FR, the bankruptcy court scheduled a discovery conference for May 29, 2019. Worms appeared on Markus's behalf on May 28, 2019, and he advised that he
intended to file a motion to vacate the Recognition Order and requested a stay of all proceedings pending a ruling on that motion. The conference, nonetheless, proceeded the next day. The bankruptcy court recognized that, on the part of certain Markus-related entities, "there is clearly, clearly a pattern of not complying with . . . discovery obligations and of stonewalling that has to come to an end." BK-Dkt. No. 59 at 29.[3] The bankruptcy court also advised Worms that it would consider his arguments to vacate the Recognition Order so long as Worms brought "a proper motion," id. at 12, which Worms later filed on June 18, 2019.
On June 25, 2019, after Worms rejected the FR's proposal to meet and confer regarding discovery, the FR served a subpoena, pursuant to Federal Rule of Civil Procedure 45, on "Larisa Markus, c/o Victor A. Worms." App'x at 84. The subpoena requested twenty-one categories of documents related to Markus's United States entities and assets, commanded production by July 9, 2019, and, by its instructions, applied "to all documents that [Markus], or any of [her] present or former agents, attorneys, assigns, consultants, employees, and/or successors possess, control or can access in the ordinary course of business." Id.
at 91. Worms made no effort to obtain responsive documents and instead moved to quash the subpoena on July 9, 2019, arguing that the subpoena is "predicated upon a Recognition Order which is null and void." Id. at 74.
The FR thereafter requested a discovery conference on the motion to quash, which the bankruptcy court held on July 23, 2019. At the conference, Worms maintained the position that discovery should be delayed until the court ruled on his motion to vacate the Recognition Order. The bankruptcy court overruled Worms's objection, and ordered that Worms meet and confer with the FR regarding the subpoena and produce all non-privileged documents requested therein. See Supp. App'x at 35 ("Unless you have a good-faith basis to assert privilege, attorney-client privilege, you're going to produce the documents."). Worms represented to the bankruptcy court that he would comply, but he ultimately made no production, asserting that he had no responsive documents in his possession.
By order dated July 30, 2019 (the "Production Order"), the bankruptcy court denied Worms's motion to quash the subpoena and ordered him to "immediately communicate with Markus and her agents, including attorneys, to obtain and produce responsive documents . . . to [the] extent the
documents are in Markus' possession, custody, or control." Sp. App'x at 59. The bankruptcy court also required Markus and Worms to complete production of all responsive documents "to the extent the documents are in their possession, custody, or control" by August 15, 2019. Id. at 59-60. On August 7, 2019, the bankruptcy court, upon consent of the FR, granted Worms's request for an extension to September 4, 2019, but warned him: "If you don't comply with orders I've entered, you do so at your own risk. And that risk is the risk of imposing sanctions." Supp. App'x at 77; see also id. at 84 ("I'm going to start imposing sanctions if you disregard what I'm saying now.").
Worms produced no documents by the deadline. On September 4, 2019, in a written response to the subpoena, Worms objected to Request No. 1 "as exceeding the limited scope of discovery provided for under Chapter 15," and stated that "[t]here are no documents responsive to" the remaining twenty requests. App'x at 118-24. At a hearing on September 9, 2019, the FR explained to the bankruptcy court that Worms claimed that Markus had no responsive documents in her possession "because she's in jail," and that Worms believed neither he nor Markus had "a duty to" obtain and produce responsive documents in the possession of Markus's agents. Id. at 147. Worms also argued, for the first
time, that he understood the scope of the subpoena to be "territorially limited" to documents within the United States. Id. at 207. Although the Production Order had directed Worms to "immediately communicate with Markus and her agents, including attorneys, to obtain and produce responsive documents," Sp. App'x at 59, it was apparent that Worms had not done so, as he did not know -- "one way or the other" -- whether they had any responsive documents, App'x at 208-09. The bankruptcy court rejected Worms's arguments as inconsistent with the Production Order's clear mandate "to obtain and produce responsive documents . . . in Markus' possession, custody, or control," id. at 208, and concluded that Worms was "stonewall[ing]" discovery, id. at 209. After confirming that Worms had not complied, to any degree, with its Production Order, the bankruptcy court advised the FR to "[b]ring a motion for contempt." Id.
C. The FR's Motion for Sanctions
On September 11, 2019, the FR accordingly filed a motion for sanctions against Worms and Markus pursuant to Federal Rules of Civil Procedure 37 and 45. In addition to seeking attorneys' fees and costs, the FR requested that the bankruptcy court impose civil contempt sanctions against Worms in the amount of $1,000 per day -- "until he contacts all known Markus
agents, including attorneys, and produces...
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