In Re: Markus

Background

The district court reviewed two related appeals from an October 23, 2019 order by the U.S. Bankruptcy Court for the Southern District of New York in a Chapter 15 proceeding. Chapter 15 provides a process for recognizing and administering certain foreign insolvency proceedings in the United States.

Yuri Vladimirovich Rozhkov, the foreign representative, had obtained recognition of a Russian insolvency proceeding involving Larisa Ivanovna Markus. The recognition order triggered protections under 11 U.S.C. § 1520, including a stay affecting actions against Markus’s property in the United States. Markus was a debtor in the foreign proceeding, and the Moscow Arbitrazh Court had appointed Rozhkov as her financial administrator.

The foreign representative learned that several million dollars were held in the Larisa Markus Revocable Trust. Markus and Ilya Bykov were co-trustees. The record stated that proceeds from the sale of Markus’s property in the United Kingdom were transferred to a New York account of the trust and that Bykov allegedly transferred three million dollars to an account of 550 Park Avenue, LLC. Rozhkov then executed documents purporting to revoke the trust. The first document was not witnessed; the second was signed by Rozhkov and two witnesses.

The bankruptcy court granted Rozhkov’s emergency motion to enforce the recognition order and entrust the trust assets to his administration. It confirmed the revocation, ordered turnover of the United Kingdom proceeds held in New York accounts controlled by the trust and 550 Park Avenue, LLC, and decided that the matter could be resolved without an adversary proceeding or evidentiary hearing. It also denied the LM/Protax Entities’ request to vacate earlier orders restraining transfers of the proceeds.

Issues on Appeal

Markus and the LM/Protax Entities challenged the conclusion that Rozhkov properly revoked the trust under New York law. Markus separately challenged the conclusion that Rozhkov had authority to revoke the trust under Russian law and argued that the bankruptcy court should have held an evidentiary hearing. The LM/Protax Entities also sought permission to transfer more than four million dollars to the escrow account of the Law Offices of Daniel A. Singer PLLC and asked the district court to lift restraints on their use of the funds.

Trust Revocation Under New York Law

The district court agreed with the bankruptcy court’s result but not all of its reasoning. The bankruptcy court had relied on New York’s Estates, Powers and Trusts Law and concluded that the second revocation complied with the statute. The district court explained that Section 11 of the trust agreement, rather than the statute alone, governed the revocation procedure. Section 11 required a revocation instrument to be signed, acknowledged, delivered to the trustee, and served on the trustee in person or by registered mail.

The district court held that the appellants had waived their arguments concerning the acknowledgment and service requirements because they had not raised those arguments in the bankruptcy court. The court nevertheless addressed the arguments in the alternative. It held that the second revocation was valid despite the lack of an acknowledgment because there were sufficient indicators of authenticity and no showing of prejudice. It also held that the failure to serve Bykov did not invalidate the revocation. The court relied on the trust agreement and New York law, which provided that failure to give notice did not affect the validity or effective date of a revocation. The court also noted that Bykov received notice within one day of the first revocation and therefore was not prejudiced.

The district court affirmed the bankruptcy court’s holding that Rozhkov’s revocation of the trust complied with New York law and that the second revocation related back to the date of the first revocation.

Trust Revocation Under Russian Law

The district court affirmed the bankruptcy court’s determination that Rozhkov had authority to revoke the trust under Russian law. The court did not decide the substance of Markus’s challenge because it found that she had waived the issue by failing to raise it in the bankruptcy court and by not explaining that failure. The LM/Protax Entities had raised the issue below, but they had not appealed that portion of the bankruptcy court’s decision.

Evidentiary Hearing

The district court held that the bankruptcy court did not abuse its discretion by deciding the turnover motion without an evidentiary hearing. An evidentiary hearing was unnecessary because the record did not contain disputed material facts that required live evidence. The court also noted that Markus had not provided evidence supporting her attorney’s assertion that the Chapter 15 proceeding was part of a corrupt enterprise. The materials submitted consisted of an image of a billboard in Moscow and the website of a Russian investment bank seeking Markus’s assets, without a declaration or other supporting evidence.

Disposition

Judge Analisa Torres affirmed the October 2019 Order in full. The court denied the LM/Protax Entities’ requests to transfer funds to the escrow account and to lift the restraints on their use of the funds. The clerk was directed to close the case.