New Products Corp. v. Dickinson Wright PLLC (In re Modern Plastics Corp.)
577 B.R. 690
W.D. Mich.2017Background
- Modern Plastics filed Chapter 7; creditor New Products (represented by Mark Demorest) sued the former trustee in an adversary proceeding alleging breach of fiduciary duty related to real property.
- Demorest served broad subpoenas duces tecum on seven non‑parties (Bank of America, Dickinson Wright and individual lawyers, Evergreen, 3 OCIR 337, and a BOA officer) seeking many categories of documents across ~2005–2014 with short deadlines.
- Recipients objected, warned of large compliance costs (BOA/Huron and Dickinson Wright incurred substantial fees), provided a proposed protective order conditioning production on cost reimbursement, and produced documents only after court action.
- The bankruptcy court granted a protective order and later allocated most reasonable compliance costs ($166,187.50 total) to New Products and Demorest under Fed. R. Civ. P. 45; the court also found them in contempt for failing to timely pay and awarded additional fees for prosecuting the contempt motion.
- New Products and Demorest appealed, arguing (inter alia) that the bankruptcy court lacked authority, misapplied Rule 45, failed to make Rule 52 findings, improperly shifted certain costs (including pre‑order costs and privilege review), and erred in contempt and stay rulings.
Issues
| Issue | Plaintiff's Argument (New Products/Demorest) | Defendant's Argument (Recipients) | Held |
|---|---|---|---|
| 1) Whether the bankruptcy court could shift non‑party subpoena compliance costs under Rule 45 | Rule 45 does not permit shifting of certain costs (e.g., privilege review); court lacked authority absent bad faith | Rule 45(d) protects non‑parties from significant expense and permits shifting where requesting party failed to avoid undue burden | Court upheld cost‑shifting: subpoenas were unduly burdensome, Demorest failed to take reasonable steps, and substantial reasonable costs (including privilege review and vendor fees) may be shifted under Rule 45(d) |
| 2) Whether Recipients may recover costs incurred before the court ordered production | Pre‑order costs are voluntary; Rule 45(d)(2) should not apply to costs incurred prior to a court order compelling production | Respondents repeatedly objected and warned of costs; requesting party’s inaction justified cost recovery for pre‑order work | Court held Rule 45 requires protection from "significant expense resulting from compliance" and may cover costs incurred before the court order where parties objected and non‑party incurred expenses at requester’s encouragement |
| 3) Timeliness of objections and application of Rule 45(d)(2) to Evergreen and 3 OCIR 337 | Some objections were untimely, so Rule 45(d)(2) should not apply to those recipients | Appellants failed to raise timeliness below; court may entertain late objections in unusual circumstances | Court declined to consider untimeliness (issue waived); even if considered, court exercised discretion to apply Rule 45 protections given subpoena breadth and non‑party status |
| 4) Contempt, stay, and Rule 52(a) findings | Contempt and refusal to stay were improper; Rule 52 required more detailed findings | Appellants delayed and failed to provide specific inability to pay; payment must be prompt and contempt is appropriate enforcement for non‑judgment sanctions | Court affirmed contempt and denial of stay (Appellants could have paid or shown inability to comply); Rule 52(a) sufficiency: findings were adequate for appellate review |
Key Cases Cited
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (U.S. 2015) (distinguishing bankruptcy core vs non‑core proceedings and limits on bankruptcy court authority)
- Sanders Confectionery Prods., Inc. v. Heller Financial, Inc., 973 F.2d 474 (6th Cir. 1992) (test for core proceedings in bankruptcy)
- Pennwalt Corp. v. Durand‑Wayland, Inc., 708 F.2d 492 (9th Cir. 1983) (discussion of non‑party obligations after objections to subpoenas)
- Linder v. Calero‑Portocarrero, 251 F.3d 178 (D.C. Cir. 2001) (cost‑allocation principle: party seeking discovery must bear enough cost to render remaining expense non‑significant)
- Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) (allocation of e‑discovery review costs under Rule 26 and limits on shifting within party discovery)
- Elec. Workers Pension Trust Fund v. Gary’s Elec. Service Co., 340 F.3d 373 (6th Cir. 2003) (standard for civil contempt: clear and convincing proof of violation of a definite, specific order)
- Anderson v. City of Bessemer City, 470 U.S. 564 (U.S. 1985) (standard for clearly erroneous factual findings)