562 B.R. 243
Bankr. S.D.N.Y.2017Background
- CSI Leasing (CSILI and CSIM) holds claims against SEPS and its non‑debtor subsidiary SEK arising from a 2011 equipment lease; total claimed ≈ $2.5 million against SEPS/SEK.
- In March 2016 SEK sold substantially all assets to LONGi for ≈ $63 million; SEK received closing proceeds and then transferred (“Upstream”) most proceeds to SunEdison affiliates, leaving SEK with little to pay creditors; $18 million was held back.
- SEPS (a debtor) guaranteed SEK’s lease; many SunEdison entities filed chapter 11 in April 2016; SEK is subject to a Malaysian liquidation begun Oct. 4, 2016.
- CSI sought a broad Rule 2004 examination and production of “all documents and communications” relating to the Upstream, any Future Upstreams, plan funding, projected finances, and matters relevant to SEK/Litigation in Malaysia.
- Debtors produced initial materials (APA, closing binder, fund-flow info) but opposed broader discovery as speculative, burdensome, premature, unnecessary to allowance of CSI’s claims, and primarily sought to aid CSI’s foreign (Malaysian) litigation.
- The Court denied the application except that Debtors must provide sufficient information to identify the flow of funds comprising the Upstream, finding most requests disproportionate and intended to support foreign litigation rather than administration of the bankruptcy estate.
Issues
| Issue | Plaintiff's Argument (CSI) | Defendant's Argument (Debtors) | Held |
|---|---|---|---|
| Whether Rule 2004 authorizes broad discovery about the Upstream and related transactions | Needs discovery to establish claims and preserve rights in Malaysia; requests are narrow | Overbroad, speculative, premature; Debtors already produced key documents; requests exceed Rule 2004 scope | Denied in large part; limited production required only to show flow of funds for the Upstream |
| Whether CSI demonstrated good cause for expansive Rule 2004 exam | Good cause: necessary to establish claim and prevent undue hardship in foreign proceeding | No good cause tied to these bankruptcy cases; burden outweighs benefit | CSI failed to show requisite good cause for most requests |
| Whether proportionality and burden permit production of “all documents and communications” across affiliates and ESI sources | Requests are targeted; cost/disruption manageable | Requests would require global, burdensome searches for ESI and affiliate files; disproportionate given CSI’s likely recovery | Court applied proportionality concerns and limited scope; refused global “all documents” searches |
| Proper use of Rule 2004 to obtain discovery for foreign (Malaysian) liquidation | Information is needed immediately to pursue Malaysian remedies; Debtors possess relevant records | Rule 2004 discovery must relate to the administration of this bankruptcy, not primarily to foreign litigation | Discovery aimed principally to assist Malaysian proceeding is not a sufficient basis; limited production tied to estate administration only |
Key Cases Cited
- In re SunEdison, Inc., 556 B.R. 94 (Bankr. S.D.N.Y. 2016) (context on debt, insolvency, and case scale)
- In re Board of Directors of Hopewell International Insurance Ltd., 258 B.R. 580 (Bankr. S.D.N.Y. 2001) (Rule 2004 grants court significant discretion)
- In re Metiom, Inc., 318 B.R. 263 (S.D.N.Y. 2004) (good‑cause standard for Rule 2004 tied to necessity to establish claim or avoid injustice)
- In re Dinubilo, 177 B.R. 932 (E.D. Cal. 1993) (same)
- In re AOG Entertainment, Inc., 558 B.R. 98 (Bankr. S.D.N.Y. 2016) (application of Rule 2004 in chapter 11)
- Drexel Burnham Lambert Group, Inc., 123 B.R. 702 (Bankr. S.D.N.Y. 1991) (Rule 2004 relevance vs. burden and limits on fishing expeditions)
- In re Foerst, 93 F. 190 (S.D.N.Y. 1899) (historical reference to “fishing examination”)
- In re Garland Corp., 6 B.R. 456 (1st Cir. BAP 1980) (adequate protection not available to unsecured creditors)