Adams and Reese attorney Lauren Baio had her article published in the American Bankruptcy Institute (ABI) Bankruptcy Litigation Committee newsletter. In the August 2024 edition, Baio wrote, “Rule 2004 Examinations in Adversary Proceedings or Contested Matters: Not Your Time to Fish!”
Baio is a member of the ABI Bankruptcy Litigation and Young & New Members committees. At Adams and Reese, she represents clients in financial services, including commercial restructuring and bankruptcy, and commercial litigation. She is admitted to practice in Florida, Virginia, and the District of Columbia.
Baio also serves on the DC Network Board of the International Women’s Insolvency & Restructuring Confederation as the Secretary and Co-Chair of the Communications Board; on The Florida Bar Young Lawyers Division Board of Governors; and The Florida Bar Business Law Section – Bankruptcy/UCC Committee. This fall, she is participating in the 2024 Next Generation (“NextGen”) program at the National Conference of Bankruptcy Judges’ (NCBJ) Annual Meeting, Sept. 18-20, 2024, in Seattle, Washington.
Baio’s article discussing the limitations imposed on Rule 2004 examinations by the Federal Rules of Civil Procedure during an adversary proceeding or contested matter is reprinted below with permission from the ABI.
Rule 2004 Examinations in Adversary Proceedings or Contested Matters: Not Your Time to Fish!
By Lauren Baio, Adams and Reese
Member, ABI Bankruptcy Litigation Committee
Litigation in bankruptcy can be highly contentious, and attorneys often believe that the normal rules in federal district court governing depositions do not apply to a Rule 2004 examination of a debtor. But do those attorneys have it wrong in an adversary proceeding or contested matter? Rule 2004 exams are not always as broad as interested parties hope.
Rule 2004 exams are often used as a fishing expedition into the debtor's acts, conduct, property, liabilities and financial condition. Some of the limitations on the scope of discovery in the Federal Rules of Civil Procedure do not apply. But bankruptcy attorneys conducting an exam often forget (or ignore) that Rule 2004 exams are subject to far more scrutiny in certain situations. Specifically, when a Rule 2004 exam is set while an adversary proceeding or a contested matter is pending, the exam will be subject to the "pending procedure rule" and the discovery limitations in the Federal Rules of Civil Procedure will apply.
When an adversary proceeding or contested matter commences during the bankruptcy, those matters become "pending proceedings" subject to the pending proceeding or pending litigation rule. [1] The rule exists to prevent an interested party from using discovery obtained during a Rule 2004 exam in a concurrent adversary proceeding or contested matter. [2] Once a pending proceeding commences, bankruptcy courts hold that parties seeking discovery should follow Federal Rules of Bankruptcy Procedure 7026-7037, which incorporate Federal Rules of Civil Procedure 27-37. [3] Another limitation is that bankruptcy courts have the discretion to determine whether Rule 2004 discovery will be allowed at all, considering the competing interests of the parties and balancing the relevance and necessity of the information sought by the Rule 2004 exam. [4]
Courts are frequently concerned that parties may use the broader Rule 2004 exams to circumvent the safeguards under the Federal Rules of Civil Procedure, so courts more closely scrutinize Rule 2004 requests when a pending proceeding exists. [5] These limitations are designed to prevent abuse and harassment by those seeking to use Rule 2004. [6] For example, in In re Snyder, 52 F.3d 1067 (5th Cir. 1995), the bankruptcy court denied production under a subpoena issued under Rule 2004 where the interested party's primary motivation was to use those materials in a state court action against the examinee. So, when scheduling a Rule 2004 exam, keep in mind that it is not an opportunity to fish when contested matters are pending. In fact, the Federal Rules of Civil Procedure will prevent such expeditions.
Footnotes
[1] See In re SunEdison, 572 B.R. 482, 490 (Bankr. S.D.N.Y. 2017).
[2] See In re Enron Corp., 281 B.R. 836, 841-42 (Bankr. S.D.N.Y. 2002).
[3] Id.; see also In re Defoor Centre LLC, 634 B.R. 630, 639 (Bankr. M.D. Fla. 2021) (under pending proceeding rule, "once a contested matter is commenced, discovery should be pursued under the Federal Rules of Civil Procedure and not Rule 2004").
[4] See In re SunEdison Inc., 572 B.R. 482, 489-90 (Bankr. S.D.N.Y. 2017).
[5] See In re Enron Corp., 281 B.R. 836, 841 (Bankr. S.D.N.Y. 2002).
[6] Id. at 840-41.
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