615 B.R. 679
S.D.N.Y.2020Background
- Larisa Markus, a Russian national and former bank president, was subject to Russian insolvency and criminal proceedings; Yuri Rozhkov was appointed her Russian financial administrator and later filed a Chapter 15 recognition petition in SDNY.
- The Bankruptcy Court granted recognition; the Foreign Representative (FR) sought discovery in the U.S. to trace Markus’s assets and served a Rule 45 subpoena on Markus (served c/o her U.S. counsel, Victor Worms).
- Worms filed to quash and litigated jurisdictional and scope objections, then repeatedly refused or failed to produce documents after a July 30, 2019 Bankruptcy Court order directing Markus and Worms to obtain and produce responsive materials.
- The FR moved for sanctions and attorneys’ fees; the Bankruptcy Court (1) imposed monetary sanctions ($1,000/day plus a lump sum for past noncompliance) and (2) awarded $60,000 in fees against Worms. Worms appealed.
- The district court reviewed the appeals: it addressed standing/timeliness issues, held that some challenges to the July 30 order were untimely, concluded Rule 37 largely did not apply to a nonparty Rule 45 subpoena, affirmed inherent-authority civil sanctions in part, vacated the lump-sum retroactive fine as criminal in nature, and remanded both sanctions and fee awards for reconsideration.
Issues
| Issue | Worms' Argument | FR's Argument | Held |
|---|---|---|---|
| Standing to appeal (named appellant Markus) | Appeal should be dismissed because Markus (the named appellant) lacks pecuniary interest | Worms was the real party aggrieved; captioning error should not defeat appeal | Appeal not dismissed; Worms is the effective appellant (FRAP 3(c)(4) / Johns-Manville reasoning applied) |
| Timeliness / challenge to July 30 discovery order | July 30 discovery order cannot now be attacked because it was appealable and not timely appealed | July 30 order was appealable as Chapter 15 discovery; Barnet controls | July 30 order was immediately appealable, so Worms cannot relitigate the correctness of that discovery order on appeal of the sanctions/fees orders; review limited to sanctions/fees issues |
| Availability of Rule 37 sanctions in Chapter 15 and against Worms for failing to comply with a Rule 45 subpoena | Rule 37 never applies here (Chapter 15, nonparty Rule 45 subpoena); Worms (as attorney for a nonparty) cannot be sanctioned under Rule 37 | Rule 37 may apply in Chapter 15 contested matters; attorneys can be sanctioned under certain Rule 37 subsections | Rule 37 can apply in Chapter 15 contested matters via Bankruptcy Rules 9014/7037/9020, and attorneys can be sanctioned under some Rule 37 provisions; but Rule 37 is not the proper vehicle to sanction an attorney for failure to comply with a Rule 45 subpoena served on a nonparty—Rule 45(g) governs enforcement of subpoenas |
| Inherent-power sanctions, civil vs criminal character, and fee award authority | Bankruptcy court lacked or misapplied inherent-power authority; lump-sum fine was punitive/criminal; fee award may have been improperly grounded in Rule 37 | Bankruptcy courts possess inherent contempt powers; sanctions appropriate for willful noncompliance; fees mandatory under Rule 37 | Bankruptcy court has inherent sanctioning power and civil coercive per-diem fines (prospective) may be imposed and were affirmed in part; the retroactive lump-sum payable to the court was punitive/criminal and vacated; Fees Order vacated/remanded because it is unclear whether fees were awarded under Rule 37 (mandatory) or inherent authority (discretionary) |
Key Cases Cited
- In re Barnet, 737 F.3d 238 (2d Cir. 2013) (Chapter 15 discovery orders are immediately appealable like §1782 orders)
- Shcherbakovskiy v. Pa Capo Al Fine, Ltd., 490 F.3d 130 (2d Cir. 2007) (broad control concept for document production; practical ability to obtain documents can satisfy control)
- Apex Oil Co. v. Belcher Co., 855 F.2d 1009 (2d Cir. 1988) (distinguishing which Rule 37 subsections permit sanctions against attorneys)
- In re Highgate Equities, Ltd., 279 F.3d 148 (2d Cir. 2002) (sanctions determinations reviewed for abuse of discretion)
- In re Sanchez, 941 F.3d 625 (2d Cir. 2019) (bankruptcy courts possess inherent sanctioning powers)
- Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821 (1994) (tests distinguishing civil vs criminal contempt)
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (courts’ inherent authority to sanction for abuse of judicial process)
- In re Lozano, 392 B.R. 48 (Bankr. S.D.N.Y. 2008) (applying Shcherbakovskiy and analyzing control/compulsory-process context)