SHELLEY C. CHAPMAN, UNITED STATES BANKRUPTCY JUDGE.
This contested chapter 15 proceeding presents an issue that the Bankruptcy Code does not explicitly address and as to which there is scant case law: how to determine the "center of main interests" (the "COMI") of an individual debtor. Here, the debtor Natalia Pirogova (the "Debtor" or "Ms. Pirogova"), who was born in Belarus, is a Russian citizen and is the holder of a "Green Card" which affords her permanent resident status in the United States. Her story is a colorful one; it includes, among other things, an outstanding Russian warrant for her arrest; alleged clandestine trips to Russia by way of the Belarus/Russia border; and an alleged trail of fraud, failed investments, and outstanding debt in both Russia and the United States. What brings her here to this Court is the petition of Yuri Vladimirovich Rozhkov, the trustee and foreign representative (the "Foreign Representative") appointed by the Moscow Arbitrazh Court (the "Russian Court") in Ms. Pirogova's pending insolvency proceeding (the "Russian Insolvency Proceeding") under the Russian Federation Federal Law No 127-FZ "On Insolvency (Bankruptcy)," which proceeding was commenced against her by one of her principal creditors, the Public Joint-Stock Company VTB 24, also known as "VTB Bank."
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.
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
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.
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." 11 U.S.C. § 1502(7); In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 331 (S.D.N.Y. 2008) (hereinafter, "Bear Stearns II"). The conditions for recognition of a foreign proceeding are set forth in section 1517 of the Bankruptcy Code, which provides that, subject to the public policy exception contained in section 1506, a court shall, after notice and a hearing, enter an order recognizing a foreign proceeding if:
11 U.S.C. § 1517(a). Section 1517(b) of the Bankruptcy Code further states that a foreign proceeding shall be recognized
11 U.S.C. § 1517(b).
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, 389 B.R. at 331 (citing H.R. Rep. No. 109-31, at 114 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, 173). "Recognition is not a `rubber stamp exercise.'" In re Creative Finance Ltd., 543 B.R. 498,
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." 11 U.S.C. § 1502(4). The location of the debtor's COMI is the sole criterion for qualifying a proceeding as a foreign main proceeding. See Bear Stearns II, 389 B.R. at 331-32 (citing the United Nations Commission on International Trade Law Guide to Enactment of the Model Law on Cross-Border Insolvency). The relevant time period for determining a debtor's COMI is as of the time of the filing of the chapter 15 petition unless a court finds that the debtor has manipulated its COMI in bad faith. See Morning Mist Holdings Ltd. v. Krys (In re Fairfield Sentry Ltd.), 714 F.3d 127, 137 (2d Cir. 2013).
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." 11 U.S.C. § 1516(c); see also In re SPhinX, Ltd., 351 B.R. 103, 117 (Bankr. S.D.N.Y. 2006), aff'd, 371 B.R. 10 (S.D.N.Y. 2007). The Code does not define "habitual residence," but courts have commonly acknowledged that habitual residence is virtually identical to the concept of domicile, which is established by one's "physical presence in a location coupled with an intent to remain there indefinitely." Lavie v. Ran (In re Ran), 607 F.3d 1017, 1022 (5th Cir. 2010) (citing Texas v. Florida, 306 U.S. 398, 59 S.Ct. 563, 83 S.Ct. 817 (1939)); accord In re Kemsley, 489 B.R. 346, 353 (Bankr. S.D.N.Y. 2013) ("The term habitual residence includes an element of permanence and stability and is comparable to domicile; it connotes a meaningful connection to a jurisdiction, a home base where an individual lives, raises a family, works and has ties to the community."). The presumption established by section 1516(c) applies, however, only in the absence of evidence to the contrary. See In re SPhinX, Ltd., 351 B.R. at 117 (stating that the statutory presumption of section 1516(c) may be of less weight in the event of a serious dispute); In re Millennium Glob. Emerging Credit Master Fund Ltd., 474 B.R. at 92. Where evidence is presented to the contrary, courts in this Circuit have concluded that cannot rely solely upon the presumption regarding a debtor's habitual residence, but rather they must consider all of the relevant evidence. Id. (citing In re Fairfield Sentry Ltd., 2011 WL 4357421, at *, 2011 U.S. Dist. LEXIS 105770, at *9); see also In re Kemsley, 489 B.R. at 363 (holding that, "when deciding COMI for an individual for whom the presumption of Section 1516(c) does not readily apply, the Bankruptcy Court must weigh the facts on a case by case basis").
In analyzing an individual's habitual residence, courts consider "(1) the length of time spent in the location; (2) the
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. Id. at 1024.
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. 489 B.R. at 355 (observing that an individual debtor may not have lived in any one place with the intention of establishing the kind of residential stability contemplated in section 1516(c)). Ms. Pirogova's case presents such a challenge. Aside from the evidence with respect to the Moscow Apartment, discussed supra, the Foreign Representative points to additional "indicia of COMI" to attempt to establish that Russia is Ms. Pirogova's COMI. The Court finds that such evidence, even taken together, is inadequate to support a finding that Russia is the Debtor's COMI.
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, 489 B.R. at 352-54, the fact that Ms. Pirogova has family and friends in Russia is insufficient to establish that Russia was her COMI as of the Petition Date. Unlike the debtor in Kemsley, Ms. Pirogova did not express a desire to live near her son and grandchildren in Russia, nor was there any evidence introduced at the Hearing that Ms. Pirogova maintains a close relationship with anyone in Russia.
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.
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." 11 U.S.C. § 1502(5). "Whether an establishment exists is `essentially a factual question, with no presumption in its favor.'" In re Kemsley, 489 B.R. at 362 (citing In re Ran, 607 F.3d at 1026). Section 1502(2) defines "establishment" as "any place of operations where the debtor carries out a nontransitory economic activity." 11 U.S.C. § 1502(2). The terms "place of operations" and "nontransitory economic activity" are not defined in the Code.
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, 607 F.3d at 1027. The mere presence of an asset in a given location, by itself, however, is insufficient to constitute a place of operations; to have a place of operations, the proposed debtor must engage in some economic activity in such location as of the petition date, whether the said activities are commercial, industrial or professional. Id. (citations omitted); see also In re Creative Finance, 543 B.R. at 520 ("The terms `operations' and `economic activity' require a showing of a local effect on the marketplace, more than mere incorporation and record-keeping and more than just the maintenance of property."). "The `bar is rather high' to prove that a debtor has an establishment." In re Kemsley, 489 B.R. at 362 (citing In re Ran, 607 F.3d at 1026-27) (additional citations omitted).
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, 607 F.3d at 1027-28 (noting that, even if the court were to conclude that the debtor possessed a place of operations in Israel at the time the petition was filed, because the debtor did not carry out any nontransitory economic activity in Israel, the second part of the establishment requirement was not met). The Court finds that the Foreign Representative's scant evidence and conclusory allegations are insufficient to prove that Ms. Pirogova carried out any nontransitory economic activity in Russia at the time of the Petition Date such that Russia could be considered her "establishment."
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, 607 F.3d at 1028 (concluding that the existence of the involuntary Israeli bankruptcy proceeding alone was insufficient evidence to enable the court to conclude that Ran carried out nontransitory economic activity in Israel).
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.
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.
