In re Pirogova
This is not Ms. Pirogova's first experience in a United States bankruptcy court; her single asset real estate entity, NMP-Group LLC, was a debtor in a chapter 11 proceeding in this Court in 2013. In the instant case - commenced some ten years after Ms. Pirogova obtained her Green Card, some five years after the commencement of the NMP-Group LLC chapter 11 case, and some three years after commencement of the Russian Insolvency Proceeding - the Foreign Representative asks this Court to find that, notwithstanding Ms. Pirogova's presence in the United States, which the Foreign Representative maintains is itself in furtherance of a fraud, Ms. Pirogova has continued her fraudulent activities in Russia and that Russia is her COMI. The burden of proof with respect to the issue of COMI falls squarely on the Foreign Representative; for the reasons that follow, the Court finds that the Foreign Representative has failed to adduce sufficient evidence for the Court to conclude that the Debtor's COMI is Russia such that the Court can recognize the Russian Insolvency Proceeding as a foreign main proceeding, or, alternatively, that the Debtor has an "establishment" in Russia as contemplated by the applicable provisions of chapter 15 such that the Court can recognize the Russian Insolvency Proceeding as a foreign nonmain proceeding.
PROCEDURAL BACKGROUND
On March 30, 2018 (the "Petition Date"), the Foreign Representative filed (i) a form chapter 15 petition [Dkt. No. 1] pursuant to sections 1504 and 1515 of title 11 of the United States Code (the "Bankruptcy Code"), commencing a case under chapter 15 ancillary to the Russian Insolvency Proceeding; and (ii) a Verified Petition Under Chapter 15 for Recognition of Foreign Main Proceeding [Dkt. No. 2] (the "Verified Petition" and, together with the form
In support of the Petition, the Foreign Representative filed the Declaration of Sergey S. Sokolov [Dkt. No. 5] and the Declaration of Yuri Vladimirovich Rozhkov [Dkt. No. 7] (the "Rozhkov Decl."). The Foreign Representative also filed a Motion for (i) Ex Parte Emergency Relief and (ii) Provisional Relief [Dkt. No. 6], together with the Declaration of Rick Antonoff [Dkt. No. 8] in support thereof. On April 2, 2018, this Court issued a temporary restraining order [Dkt. No. 10] temporarily granting the requested provisional relief and ordering that (i) section 362 of the Bankruptcy Code shall apply with respect to the Debtor and her property within the territorial jurisdiction of the United States and (ii) the Stayed Actions (as defined therein) shall be enjoined until, inter alia , the Court decides whether to grant the Petition and recognize the Russian Insolvency Proceeding.
Ms. Pirogova filed opposition to the Petition [Dkt. No. 45] (the "Pirogova Opposition"), together with the Declaration of Natalia Pirogova [Dkt. Nos. 43-44] (the "Pirogova Decl.") in support thereof. Responses to the Petition were also filed by (i) M Investment Capital, LLC and Mark Shvartsburd (collectively, the "Shvartsburd Parties") [Dkt. No. 34];
On September 6, 2018, the Foreign Representative filed a reply in further support of his requests for recognition and for provisional relief [Dkt. No. 52] (the "Reply"), together with the Declaration of Sergey S. Sokolov [Dkt. No. 53] and the Declaration of Evan J. Zucker [Dkt. No. 54] in support thereof. On September 26 and September 27, 2018, the Court conducted a two-day evidentiary hearing on the Petition (the "Hearing"), at which the Court heard (a) oral argument from counsel to the Foreign Representative and counsel to Ms. Pirogova and (b) witness testimony from (i) Mr. Sergey S. Sokolov, the Foreign Representative's Russian law expert; (ii) the Foreign Representative (through an interpreter); and (iii) Ms. Pirogova (through an interpreter).
Following the Hearing, the Foreign Representative filed a post-trial brief [Dkt. No. 60] (the "FR Post-Trial Br.") and Ms. Pirogova filed a post-trial brief [Dkt. No. 61] (the "Pirogova Post-Trial Br.").
For the reasons that follow, the Foreign Representative's request for recognition of
FACTUAL BACKGROUND
Ms. Pirogova was born in Belarus, which was part of the former U.S.S.R.
On March 30, 2018, as set forth supra , the Foreign Representative filed the Petition in this Court seeking recognition of the Russian Insolvency Proceeding under chapter 15 of the Bankruptcy Code.
DISCUSSION
Chapter 15 of the Bankruptcy Code defines "recognition" as "the entry of an order granting recognition of a foreign main proceeding or foreign nonmain proceeding under this chapter."
(1) such foreign proceeding for which recognition is sought is a foreign main proceeding or foreign nonmain proceeding within the meaning of section 1502 ;
(2) the foreign representative applying for recognition is a person or body; and
(3) the petition meets the requirements of section 1515.
(1) as a foreign main proceeding if it is pending in the country where the debtor has the center of its main interests; or
(2) as a foreign nonmain proceeding if the debtor has an establishment within the meaning of section 1502 in the foreign country where the proceeding is pending.
Only a foreign main proceeding or a foreign nonmain proceeding meeting the standards of section 1502 of the Bankruptcy Code is entitled to recognition. See Bear Stearns II ,
A. Recognition of a Foreign Main Proceeding
1. Applicable Law
Pursuant to section 1502(4) of the Bankruptcy Code, a " 'foreign main proceeding' means a foreign proceeding pending in the country where the debtor has the center of its main interests."
Section 1516(c) of the Bankruptcy Code provides that, "[i]n the absence of evidence to the contrary, the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the center of the debtor's main interests."
In analyzing an individual's habitual residence, courts consider "(1) the length of time spent in the location; (2) the
2. Analysis
The Foreign Representative argues that the Russian Insolvency Proceeding is a foreign main proceeding because Russia should be "deemed" to be Ms. Pirogova's COMI.
In support of this argument, the Foreign Representative points to the following "indicia of COMI": as of the Petition Date, (i) Ms. Pirogova owned property in Moscow; (ii) Ms. Pirogova was evicted from her New York rental apartment; (iii) Ms. Pirogova's Florida vacation condominium in Fisher Island was the subject of a foreclosure proceeding; and (iv) Ms. Pirogova travelled "nomadically" through Russia, Israel, Belarus, and the United States.
Finally, the Foreign Representative argues that, in determining the location of a debtor's COMI, the Court should weigh factors such as the location of the debtor's assets and her creditors and the expectations of interested third parties.
In sharp contrast, Ms. Pirogova argues that the evidence presented by the Foreign Representative at the Hearing does not establish that, as of the Petition Date, Russia was her COMI, such that the Russian Insolvency Proceeding should be recognized as a foreign main proceeding. To the contrary, in both her declaration and in her testimony at the Hearing, Ms. Pirogova repeatedly emphasized her intention to leave Russia permanently and establish her domicile in the United States, citing actions she took in furtherance of that intention well prior to the Petition Date.
The Fifth Circuit's decision in In re Ran is particularly instructive here. In Ran , the Court of Appeals affirmed a lower court decision
In analyzing Mr. Ran's COMI, the Fifth Circuit weighed the facts placed into evidence by the Israeli receiver in support of the contention that Israel was Mr. Ran's COMI (i.e. , that Mr. Ran's creditors were located in Israel and that his principal assets were being administered in the Israeli bankruptcy proceeding, which was initiated in Israel under Israeli law) against the following facts: (i) Mr. Ran and his family left Israel nearly a decade prior to the filing of the chapter 15 petition; (ii) Mr. Ran had no intention of returning to Israel; and (iii) Mr. Ran was a permanent legal resident of the United States and his children were U.S. citizens. The Court determined that the evidence proffered by the Israeli receiver, when weighed against these facts, was insufficient to establish by a preponderance of the evidence that Ran's COMI was in Israel.
So too here. The Court finds that the Foreign Representative has failed to meet his burden to prove by direct evidence that Ms. Pirogova's COMI at the time of Petition Date was Russia. The evidence proffered at the Hearing was insufficient to provide a basis on which the Court can conclude that, as of the Petition Date, Ms. Pirogova's domicile or habitual residence was Russia, particularly when weighed against (i) Ms. Pirogova's stated intention to leave Russia permanently in 2008 and never reside there again;
The Court observes that the Foreign Representative places particular emphasis on Ms. Pirogova's ownership of an apartment located at Verhniye Polya street, 14, Apt. 266, Moscow, Russia (the "Moscow Apartment") in order to support his assertion that Russia is Ms. Pirogova's COMI.
While the Foreign Representative testified that on two or three occasions he visited the building in which the Moscow Apartment is located "as part of the investigative measures to seek out information on the property of the Debtor," he admitted in his testimony that he never entered the Moscow Apartment to determine whether or not Ms. Pirogova was living there.
As this Court observed in In re Kemsley , challenges arise in applying recognition principles to an individual whose life is not tied to one place, particularly when such individual has made multiple moves.
First, although the Court recognizes that a debtor's familial ties to a country may be a factor in determining an individual's COMI, see, e.g. , Kemsley ,
Lastly, the Foreign Representative contends that Ms. Pirogova's COMI is Russia because she has been perpetuating a fraud, avoiding debts, and evading authorities in
The Foreign Representative asserts that denying recognition of the Russian Insolvency Proceeding would be contrary to the spirit of chapter 15 because it would suggest that "an individual who defrauds creditors and evades law enforcement authorities in her home country need only come to the United States, conceal her interest in property through holding companies and nominee agreements, and thereby prevent a duly appointed bankruptcy administrator from recovering her assets for the benefit of all creditors."
Accordingly, for all of the foregoing reasons, the Court concludes that the Foreign Representative has not met his burden to establish by a preponderance of the evidence that Ms. Pirogova's COMI is in Russia; as such, the Russian Insolvency Proceeding cannot be recognized as a foreign main proceeding under section 1502 of the Bankruptcy Code.
B. Recognition of a Foreign Nonmain Proceeding
1. Applicable Law
Pursuant to section 1502(5) of the Bankruptcy Code, a " 'foreign nonmain proceeding' means a foreign proceeding, other than a foreign main proceeding, pending in a country where the debtor has an establishment."
Once again, there is limited case law analyzing these terms in the context of an individual foreign debtor. Analyzing the legislative history of chapter 15 with respect to "establishment," the Fifth Circuit in In re Ran determined that, in the context of an individual debtor (rather than a corporate debtor), "a place of business could conceivably align with the debtor having a secondary residence or possibly a place of employment in the country where the receiver claims that he has an establishment." In re Ran ,
2. Analysis
The Foreign Representative submits that, if the Russian Insolvency Proceeding is not recognized as a foreign main proceeding, it should be recognized as a foreign nonmain proceeding because Ms. Pirogova engaged in ongoing nontransitory economic activity in Russia and had assets in Russia as of the Petition Date.
As evidence of Ms. Pirogova's establishment in Russia, the Foreign Representative points to (i) the Utility Bills in Ms. Pirogova's name found at the Moscow Apartment, which he argues illustrate the "continuous and ongoing provision of services to her apartment and the costs associated with those services;"
Ms. Pirogova argues that none of the evidence proffered by the Foreign Representative has any probative value in meeting the statutory requirement of an establishment in Russia such that the Russian Insolvency Proceeding should be recognized as a foreign nonmain proceeding. She asserts that (i) the Utility Bills alone (assuming they even establish use of the Moscow Apartment at all) do not indicate that the utility charges were generated by her use of the apartment, as the Foreign Representative did not demonstrate that (or even attempt to investigate whether) Ms. Pirogova resided there, either as a primary or as a secondary residence;
The Foreign Representative's evidence is insufficient to satisfy the two prongs of the "establishment" requirement set forth in the statute - that the Debtor had a place of operations in Russia as of the Petition Date and that she carried out a nontransitory economic activity from such place. First, the Court has been presented with inadequate direct evidence that the Moscow Apartment could be considered a "place of operations" within the meaning of section 1502(2). As discussed supra , the Foreign Representative has introduced no evidence (i) as to the time period in which Ms. Pirogova allegedly resided in the Moscow Apartment; (ii) as to whether she continues to use the apartment as a secondary residence; or (iii) even as to whether she has been present in the Moscow Apartment at all in the past several years. While a secondary residence or a place of employment can be sufficient to constitute a place of operations, the Foreign Representative has presented no evidence that the Moscow Apartment served as either one to Ms. Pirogova. That the Moscow Apartment is still registered in Ms. Pirogova's name is inadequate to establish that the apartment was her secondary residence on the Petition Date, particularly in light of Ms. Pirogova's testimony that she had not been there in years and that she believes the apartment had been seized by the bank.
Even if the Court were to conclude that this single asset in the debtor's name in Russia was sufficient to constitute a "place of operations" within the meaning of section 1502(2), as the Foreign Representative suggests, the Foreign Representative must also prove that Ms. Pirogova carried out nontransitory economic activity in Russia from such place. See In re Ran ,
The Foreign Representative's argument that Ms. Pirogova's ownership of the Moscow Apartment "continues to generate economic activity in Moscow" because a reading of the Utility Bills demonstrates utility services continue to be used each month and the utility companies continue to extend credit to Ms. Pirogova for the value of such services
In addition, the Court is not persuaded by the Foreign Representative's contention that Ms. Pirogova's entitlement to participate in the insolvency proceeding of Taurus LLC or that her governance rights and interests in the company constitute nontransitory economic activity in Moscow.
Finally, the existence of the Russian Insolvency Proceeding alone fails to meet the statutory requirement of an establishment. See, e.g. , In re Ran ,
For the foregoing reasons, the Court concludes that the Foreign Representative has failed to meet his burden to demonstrate by a preponderance of the evidence that Ms. Pirogova had, on the Petition Date, an "establishment" in Russia within the meaning of sections 1502(2) and 1502(5) of the Bankruptcy Code such that the Russian Insolvency Proceeding should be recognized as a foreign nonmain proceeding.
In her Opposition, Ms. Pirogova raised additional objections to the Petition with respect to the following issues: (i) whether the Russian Insolvency Proceeding is a collective proceeding meeting the definition of "foreign proceeding" under section 101(23) of the Bankruptcy Code and (ii) whether recognition of the Russian Insolvency Proceeding is manifestly contrary to United States public policy under section 1506 of the Code.
CONCLUSION
For all of the foregoing reasons, the Petition for recognition of the Russian Insolvency Proceeding as a foreign main proceeding or, alternatively, as a foreign nonmain proceeding, is denied. The parties are directed to submit an order consistent with the foregoing.
Notes
On April 2, 2018, the Court also entered an order scheduling a hearing on the Petition for May 2, 2018 [Dkt. No. 11]. The hearing was consensually adjourned numerous times by the parties and ultimately scheduled for September 26 and September 27, 2018.
The Shvartsburd Parties have a pending suit against Ms. Pirogova captioned M Investment Capital, LLC, et ano. v. FGP 1, LLC, et al. , No. 650783-2018 (Sup. Ct. N.Y. Cnty.). See Shvartsburd Parties' letter to the Court [Dkt. No. 23] at 1. Although they objected to recognition of the Russian Insolvency Proceeding, the Shvartsburd Parties did not present documents or witnesses at the Hearing. See Shvartsburd Parties' Objection [Dkt. No. 34] at 1-2 (stating that Shvartsburd Parties would not present documents or witnesses to the Court because they were unsuccessful in obtaining documents concerning Ms. Pirogova's domicile and the nature and location of her business activities).
On August 30, 2018, counsel to Ms. Aferzon filed a motion to withdraw as her counsel [Dkt. No. 48], which motion was granted by order dated September 18, 2018 [Dkt. No. 56]. At the Hearing (as defined below), the opposition filed by Ms. Aferzon was stricken from the record without objection by any party. See Sept. 26, 2018 Hr'g Tr. 11:14-22.
See Pirogova Decl. ¶ 23; Sept. 27, 2018 Hr'g Tr. 49:17-18.
See Rozhkov Decl. ¶ 3; FR Ex. 2.
See Rozhkov Decl. ¶ 4; FR Ex. 2; Sept. 26, 2018 Hr'g Tr. 67:7-71:9.
See Rozhkov Decl. ¶ 5; FR Ex. 3; Sept. 26, 2018 Hr'g Tr. 72:25-74:21.
FR Post-Trial Br. Section II.
FR Post-Trial Br. ¶ 32.
'FR Post-Trial Br. ¶¶ 33-34.
FR Post-Trial Br. ¶¶ 35-36.
FR Post-Trial Br. ¶¶ 4, 23, 33-34 (citing FR Ex. 8; ECF 47-1 (Proposed Stipulation and Order between Foreign Representative and 7400 Oceanside at Fisher Island Condominium Association); Pirogova Decl. ¶¶ 23, 60; Sept. 27, 2018 Hr'g Tr. 72:17-73:14, 84:7-85:13).
FR Post-Trial Br. ¶¶ 9, 35 (citing Sept. 27, 2018 Hr'g Tr. 81:24-82:18, 92:17-20; FR Ex. 57; Sept. 26, 2018 Hr'g Tr. 117:1-118:12), ¶ 54 (citing FR Ex. 58; Sept. 26, 2018 Hr'g Tr. 125:1-126:8).
FR Post-Trial Br. ¶¶ 36-37 (citing In re Ran ,
See Pirogova Decl. at ¶¶ 23-24 ("As evidence of my intention to permanently leave Russia and to establish my domicile in the United States, on April 11, 2008, I obtained permanent resident status in the United States.... As further evidence that I had no intention to reside in Russia, I allowed my Russian passport to expire on October 21, 2015 and I never renewed that Passport."); Sept. 27, 2018 Hr'g Tr. 85:6-13 (Q: "... you testified that your domicile is in the United States?" A: "Yes." Q: "What did you mean by the term 'domicile'?" A: "I expected myself to continue living here permanently." Q: "And when did you make the decision to make the United States your domicile?" A: "That was in 2014.").
Pirogova Ex. 1; Sept. 27, 2018 Hr'g Tr. 49:22-50:1.
The Travel Document was issued to Ms. Pirogova with the surname "Priogova" instead of "Pirogova." See Pirogova Ex. 3. The Foreign Representative has asserted that Ms. Pirogova intentionally manipulated the spelling of her name so that she could travel undetected by border control and other law enforcement authorities. See FR Post-Trial Br. ¶¶ 21-22. At the Hearing, Ms. Pirogova testified that the misspelling of her surname was a mistake by the Department of Homeland Security. See Sept. 27, 2018 Hr'g Tr. 59:15-60:5. In support of her assertion, Ms. Pirogova submitted into evidence copies of Appointment Notices sent to her from the Department of Homeland Security which correctly spells her name as "Pirogova." See Pirogova Ex. 7. The Court declines to address the allegations of intentional misspelling as they are not relevant to the determination of COMI.
The renewed Travel Document was also issued to Ms. Pirogova with the surname "Priogova." See Pirogova Ex. 4.
See Pirogova Ex. 15; Sept. 27, 2018 Hr'g Tr. 71:7-22.
In Ran , the Fifth Circuit affirmed a decision of the United States District Court for the Southern District of Texas, which court had affirmed a decision of the United States Bankruptcy Court for the Southern District of Texas. In re Ran ,
The Fifth Circuit also considered whether Mr. Ran's Israeli bankruptcy proceeding met the definition of a foreign nonmain proceeding. The Court determined that Mr. Ran did not have an establishment in Israel because he did not have a place of operations in Israel and had not been carrying on nontransitory economic activity there when the chapter 15 petition was filed.
See n.15, supra .
See id.
See FR Ex. 54; Sept. 26, 2018 Hr'g Tr. 86:20-87:15. Section 4.1.1 of FR Ex. 54 indicates that there is a restriction of rights and encumbrance on the Moscow Apartment in the form of a "seizure" registered on February 13, 2013 based on a ruling dated November 27, 2012 of the Surgut Municipal Court of Khanty-Mansiysk Autonomous District Yurgra. See FR Ex. 54, § 4.1.1. The Foreign Representative concedes that the Moscow Apartment is subject to a bank lien; however, relying solely on Ms. Pirogova's testimony, he asserts that the term "seizure" merely places a limitation on Ms. Pirogova's use of the Moscow Apartment and is not equivalent to repossession, foreclosure, or transfer of ownership, and, therefore, Ms. Pirogova still owns the Moscow Apartment notwithstanding the "seizure." See FR Post-Trial Br. ¶¶ 10, 49 (citing Sept. 27, 2018 Hr'g Tr. 107:15-17, 108).
FR Ex. 54.
See Sept. 27, 2018 Hr'g Tr. 76:6-78:13.
See Sept. 26, 2018 Hr'g Tr. 96:13-23; Sept. 27, 2018 Hr'g Tr. 27:2-7.
See FR Exs. 70-72 (collectively, the "Utility Bills"). Exhibit 70, an electricity bill, is dated April 2018; Exhibit 71, a water bill, is dated May 2018; and Exhibit 72, a water bill, is dated June 2018.
See FR Exs. 70-72; Sept. 27, 2018 Hr'g Tr. 27:8-29:22.
Even if the Court were to determine that the Moscow Apartment is Ms. Pirogova's current place of residence because she no longer has a residence in New York or in Fisher Island, as the Foreign Representative suggests, such a finding would not be sufficient to enable the Court to determine that Russia was Ms. Pirogova's habitual residence. "Habitual residence is a term of art that ... impl[ies] more than just the place where an individual happens to be living at a particular time and has aspects of an intention to stay in the same location for the foreseeable future unless and until something might occur to prompt or compel a change ...." Kemsley ,
To the contrary, Ms. Pirogova stated that she and her son have not spoken in nearly five years and that she has no contact with her grandchildren. See Pirogova Decl. ¶ 57. Additionally, Ms. Pirogova testified at the Hearing that she is married to an American citizen. See Sept. 27, 2018 Hr'g Tr. 68:18-21.
See FR Post-Trial Br. ¶ 20.
See Sept. 27, 2018 Hr'g Tr. 103:4-14.
See Petition at ¶¶ 27-37 (stating that Ms. Pirogova has four lawsuits pending against her in the United States).
See FR Post-Trial Br. ¶¶ 38-44; FR Exs. 51-52.
See FR Post-Trial Br. ¶ 16 (citing FR Exs. 40, 51, and 52), ¶¶ 38-44.
Additional evidence adduced at the Hearing causes the Court to observe that Ms. Pirogova may in fact have committed bankruptcy fraud in the NMP-Group LLC chapter 11 in this Court (see FR Post-Trial Br. ¶ 17; FR Ex. Nos. 67, 68, 69 and 83). The Office of the United States Trustee is aware of this evidence.
There is no evidence in the record that Ms. Pirogova attempted to manipulate her COMI during the period between the commencement of the Russian Insolvency Proceeding and the Petition Date such that the Court would need to examine evidence with respect to that time period as well. See In re Fairfield Sentry ,
Reply ¶ 3.
See FR Post-Trial Br. Section III.
FR Post-Trial Br. ¶ 46.
FR Ex. 70-72.
FR Ex. 57.
FR Ex. 56.
FR Post-Trial Br. ¶ 6, 11; FR Ex. 58. Although the Foreign Representative adduced evidence that Ms. Pirogova owned the VAZ in 2016 at the Hearing, he concedes in his Post-Trial Brief that Ms. Pirogova's ownership of the VAZ is unclear. See FR Post-Trial Br. ¶ 14.
See Pirogova Post-Trial Br. at 10-13 (citing Sept. 27, 2018 Hr'g Tr. 27:2-28:4); see also Sept. 26, 2018 Hr'g Tr. 96:13-23 (Q: "Did you ever have occasion to visit the [Moscow Apartment]?" A: "Yes, I had the opportunity to visit that particular building, but that was quite a while ago." Q: "How many times, about, if you can remember?" A: "This is a multi-apartment building. I went there two or three times, not a single time was I able to actually enter the apartment.").
See Pirogova Post-Trial Br. at 14-15.
See Pirogova Post-Trial Br. at 17.
See Pirogova Post-Trial Br. at 13-14; Sept. 27, 2018 Hr'g Tr. 19:20-24:5.
See Sept. 27, 2018 Hr'g Tr. 76:6-23.
FR Post-Trial Br. ¶ 50.
See FR Exs. 70-72; Sept. 27, 2018 Hr'g Tr. 27:2-29:22.
See FR Post-Trial Br. ¶ 53.
See Pirogova Post-Trial Br. at 14-15.
See Sept. 27, 2018 Hr'g Tr. 34:10-14.
See FR Post-Trial Br. ¶ 52.
See FR Post-Trial Br. ¶ 46.
See Pirogova Opp. at 10-13, 20-23.