620 B.R. 31
S.D.N.Y.2020Background
- Chapter 15 case: foreign representative (Rozhkov) sought recognition of a Russian insolvency proceeding against Larisa Markus and relief to administer her U.S. assets. Judge Vyskocil recognized the foreign main proceeding.
- Markus, convicted in Russia, had U.S. assets in the Larisa Markus Revocable Trust (LM Trust), co‑trustee Ilya Bykov; proceeds from sale of Markus’s U.K. property (over $5M) were deposited into LM Trust accounts and partly transferred to 550 Park Avenue, LLC.
- Foreign Representative executed two instruments purporting to revoke the LM Trust (first unsigned/witnessed, second signed with two witnesses) and moved in bankruptcy court for turnover of the U.K. proceeds held in New York accounts.
- Bankruptcy Court (Judge Glenn) granted the Turnover Motion: (1) confirmed revocation of the LM Trust, (2) concluded no adversary or evidentiary hearing was required, and (3) ordered turnover of the U.K. proceeds to the Foreign Representative.
- Markus and the LM/Protax Entities appealed, arguing (among other things) that the revocations failed to meet the Trust Agreement and New York statutory/formal requirements, that Russian law did not authorize revocation by the Foreign Representative, and that an evidentiary hearing was required.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Foreign Representative validly revoked the LM Trust under New York law | Markus/LM‑Protax: Revocations didn’t comply with Trust §11 (acknowledgement and service) and required RPAPL/EPTL formalities | Foreign Rep: Second revocation complied with EPTL (witnesses) and substantial compliance and lack of notarization/initial defects don’t invalidate revocation | Affirmed: Appellants largely waived new formalities arguments; court found Second Revocation valid under NY law and effective as of the First Revocation date |
| Whether the Foreign Representative had authority under Russian law to revoke the trust | Markus: Foreign Rep lacked authority under Russian law (raised on appeal) | Foreign Rep: Russian law and submitted declarations support authority; issue was litigated below | Affirmed: Markus waived the argument by not raising it below; bankruptcy court’s conclusion that Russian law authorized revocation stands |
| Whether an evidentiary hearing was required before turnover | Markus: Hearing required to protect debtor’s interests given allegations of corruption and disputed facts | Foreign Rep: Record had no disputed material facts; bankruptcy court could decide on papers | Affirmed: No abuse of discretion; record sufficient and Markus failed to show need for a hearing to protect interests |
| Whether LM/Protax may transfer funds to escrow and have restraints lifted | LM/Protax: Seek transfer of turned‑over funds to counsel’s escrow and removal of restraints | Foreign Rep: Opposes — funds subject to turnover and restraints necessary to protect administration | Denied: Requests to transfer funds to escrow and lift restraints denied consistent with affirmance of turnover order |
Key Cases Cited
- In re Bennett Fundings Grp., Inc., 146 F.3d 136 (2d Cir. 1998) (standard of appellate review for bankruptcy court decisions)
- In re Vebeliunas, 332 F.3d 85 (2d Cir. 2003) (mixed questions of law and fact reviewed de novo)
- In re Dodge’s Tr., 250 N.E.2d 849 (N.Y. 1969) (trust instrument’s terms control revocation procedure before statute applies)
- In re AMR Corp., 490 B.R. 470 (S.D.N.Y. 2013) (evidentiary hearing unnecessary where no disputed material facts)