Intercontinental Enterprises, Inc. v. Keller (In Re Blinder, Robinson & Co.)Intercontinental Enterprises, Inc. v. Keller (In Re Blinder, Robinson & Co.)
MEMORANDUM OPINION AND ORDER
These related cases involve several bankruptcy court rulings permitting the trustee for Blinder, Robinson & Co., Inc., Glenn E. Keller, Jr. (“Trustee”), to conduct examinations under Bankruptcy Rule 2004. In No. 90-K-1863, Intercontinental Enterprises, Inc., the parent corporation and a creditor
The questions before me on these motions are: (1) whether No. 90-K-1863 should be dismissed as an improper appeal from a non-final order; (2) whether Intercontinental’s request for an emergency stay in No. 90-K-1863 is justified, (3) whether No. 91-K-638 should be dismissed because the notice of appeal was premature, and (4) whether No. 91-K-638 should be dismissed as an improper interlocutory appeal. In addition, during argument on these motions, Intercontinental moved to strike certain pleadings filed in connection with these appeals. For the following reasons, I grant the motion to dismiss in No. 90-K-1863, grant in part the emergency motion for stay, deny the motion to dismiss in No. 91-K-638 and deny the motions to strike.
I. Facts
On July 30, 1990, Blinder, Robinson filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. On August 1, 1990, the Securities Investor Protection Corporation (SIPC) filed a complaint in district court seeking a protective decree declaring that the customers of Blinder, Robinson were in need of protection under the Securities Investor Protection Act (SIPA), 15 U.S.C. §§ 78aaa-78i(i. After a hearing, the court granted SIPC’s request for the protective decree, appointed the Trustee and his counsel, and referred the case to the bankruptcy court for liquidation of Blinder, Robinson under SIPA. See id. § 78eee(b)(4).
On August 24, 1990, the Trustee filed a pleading entitled, “Trustee’s First Motion for Order Authorizing Conduct of Rule 2004 Examinations and Issuance of Subpoenas to Compel Attendance and Production of Documents and Other Tangible Things.” In this motion, the Trustee requested permission to examine approximately 79 persons or entities connected with Blinder, Robinson and to require them to produce documents and other information relevant to the corporation. The bankruptcy court granted this motion without a hearing on August 27, 1990 (the “August order”).
Intercontinental filed its objection to the motion on August 30, 1990, not aware that the August order had been entered. After learning that the court had already ruled, it filed a motion for reconsideration on September 5, 1990. The court denied Intercontinental’s motion for reconsideration on September 26, 1990. On October 9, 1990, Intercontinental filed its notice of appeal and motion for leave to appeal from the August order, which now constitutes No. 90-K-1863.
On April 11, 1991, the Trustee filed an emergency motion for a protective order, requesting that he be permitted to conduct Rule 2004 examinations of Blinder, Robinson’s former in-house and outside counsel without the attendance of any other persons except the testifying witness, his or her counsel, the Trustee, his counsel, and the court reporter. The Trustee requested this relief to protect Blinder, Robinson’s attorney-client privilege, which now runs to the Trustee.
See generally, Commodity Futures Trading Comm’n v. Weintraub,
Intercontinental quickly moved to set aside the April order. On April 16, 1991, the bankruptcy court entered an interim order granting Intercontinental’s motion to vacate the April order until it conducted a hearing on the issue. At the April 17, 1991 hearing, Intercontinental argued,
inter
Concurrently with its notice of appeal in No. 91-K-638, Intercontinental filed an emergency motion for stay of the April order pending appeal. I granted the motion after a hearing on April 19, 1991. The stay affects the Rule 2004 examinations of only the former attorneys of Blinder, Robinson.
On April 22, 1991, Intercontinental filed a second emergency motion for stay, this time in No. 90-K-1863. In this motion, Intercontinental requested a stay of all Rule 2004 examinations, including those of non-attorneys, pending a determination of whether the Trustee should be required to conduct discovery under the Federal Rules of Civil Procedure. I temporarily stayed the examinations until a hearing on emergency motion could be conducted.
Finally, on April 26, 1991, the Trustee moved to dismiss both the above appeals on the grounds that neither is an appeal from a final judgment. He also argued that the notice of appeal in No. 91-K-638 was premature. A hearing on the motion to dismiss and the emergency motion for stay in No. 90-K-1863 was conducted before this court on May 15, 1991. At that hearing, counsel for Intercontinental moved to strike the Trustee’s reply brief in support of his motion to dismiss and the Trustee’s affidavit filed in response to the emergency motion for stay. These matters are now before me.
II. Appeal No. 90-1863
A. Motion to Dismiss.
The Trustee asserts that the August order permitting him to conduct Rule 2004 examinations is not a final judgment ap-pealable as of right under 28 U.S.C. § 158(a). Bankruptcy appeals as of right are limited to “final judgments, orders and decrees ... of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of ... title [28].” 28 U.S.C. § 158(a). “Generally, an order is final if it ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.”
Adelman v. Fourth Nat’l Bank & Trust Co., N.A. (In re Durability, Inc.),
There is little direct authority on whether an order authorizing or limiting a Rule 2004 examination is a final, appealable order. The Trustee cites only one case, an unpublished disposition from the District of Kansas, in which the court held that such an order was interlocutory. The court in that case gave no reasoning and cited no cases in support for its conclusion. Intercontinental, on the other hand, provides only general case authority for its position that the August order was final. 1
Cases decided after the enactment of the Bankruptcy Code are less consistent. For example, in
European-American Bank & Trust Co. v. GATX Aircraft Corp. (In re Hawley Coal Mining Corp.),
More recently, in
Parent Creditors’ Committee of LTV Corp. v. LTV Corp. (In re Chateaugay Corp.),
In re Chateaugay
is instructive in this case. Here, the August order simply gave the Trustee initial authorization to commence Rule 2004 examinations of the listed parties based on his representation that they possessed information relevant to Blinder, Robinson’s affairs.
See In re Silverman,
Since further consideration of this issue has already occurred, the August order was not a final judgment and is not immediately appealable as of right. This is not to say that all appeals from Rule 2004 orders are non-final. This question should be resolved on a case-by-case basis. Where the dispute has been narrowed and there is no indication that further action by the
Intercontinental next argues that the August order meets the collateral order exception to the finality doctrine established in
Cohen v. Beneficial Industrial Loan Corp.,
As outlined above, the dispute over the proper scope of examination under Rule 2004 has continued after the entry of the August order. Intercontinental filed a separate motion for protective order seeking to limit the Trustee’s discovery under Rule 2004. This motion was denied on the grounds that Intercontinental had failed to identify the areas in which the Trustee’s proposed discovery was overbroad. Thus, this appeal fails under the first element of the Cohen test, in that the August order did not finally resolve the question of the scope of the Trustee’s rule 2004 examinations. Therefore, Intercontinental may not appeal this ruling under the collateral order doctrine.
Finally, Intercontinental requests leave to appeal the August order under Bankr.R. 8003. To proceed on this basis, Intercontinental must establish that the order appealed from “involves a controlling question of law as to which there is substantial ground for difference of opinion and ... immediate appeal from the order may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b);
Whirlpool Leasing Servs., Inc. v. Nucor, Inc. (In re Nucor, Inc.),
B. Emergency Motion for Stay.
On April 22, 1991, Intercontinental filed an emergency motion in No. 90-K-1863 to stay all of the Rule 2004 examinations scheduled by the Trustee. The thrust of Intercontinental’s motion is that the Trustee should not be permitted to use Rule 2004 to examine interested parties because he has commenced an adversary proceeding charging some of those parties with breach of fiduciary duty and related claims. Once the Trustee has commenced an adversary proceeding, Intercontinental argues that he is limited to discovery under the Federal Rules of Civil Procedure, as incorporated in Bankruptcy Rules 7026-7037 relating to adversary proceedings.
Since I dismiss No. 90-1863 for lack of jurisdiction, the emergency motion cannot be considered in the context of this appeal. Intercontinental’s emergency motion for stay should not have been filed in connection with this appeal in the first place. The only substantive issue before me in No. 90-K-1863 was whether the bankruptcy court erred in permitting the Trustee to go forward with Rule 2004 examinations without making a more particularized showing that the number of persons to be examined and the documents to be produced was necessary. At the time the bankruptcy court entered the August order, the Trustee had not yet commenced the adversary proceeding. Thus, there was no need for it to consider whether the Trustee’s use of Rule 2004 was the proper mode of discovery. It would have been inappropriate for me to have considered
Nevertheless, I will consider the emergency motion in connection with the appeal of the court’s April 17 bench ruling in No. 91-K-638. As discussed below, Intercontinental has timely filed a notice of appeal from that ruling. The issue of the Trustee’s use of Rule 2004 examinations after the commencement of the adversary proceeding was raised and ruled on in that hearing. Intercontinental will be given leave to amend its statement of issues on appeal in No. 91-K-638, and both parties may amend their designation of record to accommodate this issue.
To prevail on its emergency motion for stay, Intercontinental must demonstrate that (1) it is likely to succeed on the merits of its appeal; (2) it will suffer irreparable injury if the stay is denied; (3) the harm it will suffer outweighs the potential injury to the Trustee if the stay were granted; and (4) a stay is in the public interest.
See Drislor Assocs. v. Metro North State Bank (In re Drislor Assocs.),
As I discuss below, I have concerns with the breadth of Intercontinental’s request. Nevertheless, I find that its motion has merit. Rule 2004 permits parties in interest in a bankruptcy case to examine entities about “the acts, conduct, or property or ... the liabilities of the debtor, or ... any matter which may affect the administration of the debtor’s estate, or ... the debtor’s right to a discharge.” Bankr.R. 2004. Many courts recognize that Rule 2004 in effect authorizes a “fishing expedition,” and “ ‘is essentially creditor and trustee oriented.' ”
In re Valley Forge Plaza Assocs.,
[Ojnce an adversary proceeding or a particular contested matter is under way, discovery sought in furtherance of litigation is subject to the F.R.Civ.P. rather than the broader bounds of R2004. Many courts have expressed distaste for efforts of parties to utilize R2004 examinations to circumvent the restrictions of the F.R.Civ.P. in the context of adversary proceedings or contested matters. Pollard suggests that it is “tactically advantageous ... to submit the debtor to a Rule 2004 examination before filing a complaint,” because thereafter more limited discovery subject to the F.R.Civ.P. will be all that is available.
Id. at 674-75 (citations omitted).
The Trustee relies on
In re Drexel Burnham Lambert Group, Inc.,
Rule 2004 is the basic discovery device in bankruptcy cases. It allows, without pending action of any kind, examination of any entity on motion filed with the court pursuant to Rule 2004(a). No contested matter or adversary proceeding need be on file as a prerequisite to conducting an examination; in fact, if an adversary proceeding or contested matter is pending, the discovery devices provided for in Rules 7026-7037, which adopt various discovery provisions of the Federal Rules of Civil Procedure, apply and Rule 2004 should not be used.
See also, Collins v. Polk,
This is perhaps a tedious way to say that Intercontinental has satisfied the first requirement for stay pending appeal: a substantial likelihood of succeeding on the merits. The remaining requirements also fall in its favor. There is a strong argument that Intercontinental will be irreparably injured if the Trustee is given unfettered authority to use Rule 2004 examination to discover information relevant to the pending adversary proceeding. The Trustee argues that Intercontinental’s remedy is to seek suppression of the fruits of any improper discovery in the collateral litigation. However, by that time the damage will already have been done. As noted above, the Trustee must make a tactical decision on how to proceed with discovery. Having elected to file an adversary proceeding against Intercontinental before examining it under Rule 2004, it is now limited to discovery under the Federal Rules.
Furthermore, the bankruptcy court’s conclusions that the third and fourth elements weigh against Intercontinental are clearly erroneous. The bankruptcy court opined that delay in conducting Rule 2004 examinations would prevent the Trustee from carrying out his statutorily mandated duty to investigate the debtor’s affairs and to locate hidden assets, and that this was, in turn, prejudicial to the public interest. The bankruptcy court erred in ignoring the fact that the Trustee is not prevented from conducting any discovery, he must simply comply with the Federal Rules.
Although I find cause to grant the stay, Intercontinental’s motion to stay the 2004 examinations of all parties is over-broad. First, there is no suggestion in the above case law that the Trustee is precluded from using Rule 2004 discovery as to all entities once an adversary proceeding is commenced. Clearly, such relief would be an untailored response to this problem. Entities not affected by the adversary proceeding do not require the greater protections afforded under the Federal Rules, and the Trustee should be permitted to examine them under Rule 2004. Moreover, I question whether Intercontinental has standing to challenge the Rule 2004 examinations of other parties. Accordingly, the emergency motion for stay of Rule 2004 examinations is granted only with respect to the examinations of the officers and employees of Intercontinental. By this order, of course, ordinary discovery under the Federal Rules of Civil Procedure is not affected.
III. Appeal No. 91-638
A. Premature Notice of Appeal.
The Trustee argues that No. 91-K-638 should be dismissed because Intercontinental filed its notice of appeal before the bankruptcy court entered written findings
Under Federal Rule of Appellate Procedure 4(a)(2), “[e]xcept as provided in (a)(4) of ... Rule 4, a notice of appeal filed after the announcement of a decision or order but before the entry of the judgment or order shall be treated as filed after such entry and on the day thereof.” Although patterned after federal appellate rules, the Bankruptcy Rules governing appeals, Rules 8001 to 8019, do not expressly incorporate Rule 4(a)(2). Nevertheless, several courts have held that Rule 4(a)(2) applies to bankruptcy appeals, and that a notice of appeal filed after the entry of oral findings but before a judgment is not a nullity.
E.g., Nicoladze v. Lawler,
The Trustee’s reliance on
In re Sweet Transfer
is misplaced. In
In re Sweet Transfer,
the appellants filed a notice of appeal from an order denying their motion for reconsideration of an order imposing sanctions. The court correctly held that a notice of appeal filed before the entry of judgment on a Rule 9023 motion to reconsider is premature and a new notice of appeal must be filed.
Here, Intercontinental appeals the denial of its motion under Bankruptcy Rule 9018. It is not one of the motions listed in Bankr.R. 8002(b) in which a premature notice of appeal is a nullity. Therefore, Intercontinental’s notice of appeal filed after the court’s bench ruling but before the entry of a written order is sufficient to perfect its appeal. Nor is
In re Wetzler
dispositive.
In re Wetzler
involved an appeal of an award of attorneys fees. The question in that case was whether the bankruptcy court’s order awarding fees was final because the court had not yet determined the amount of those fees.
See
B. Dismissal as an Improper Interlocutory Appeal.
The Trustee also argues that this appeal must be dismissed as an improper appeal of a non-final judgment. In essence, he contends that this is simply a discovery dispute and, as such, it is not appealable until after the final resolution of the case. To support his contention that this appeal should be dismissed as interlocutory, the Trustee relies on a long line of cases that hold that a party may not directly appeal from an order compelling discovery except by violating that order and appealing from the subsequent entry of a contempt citation.
See, e.g., Cobbledick v. United States,
I question whether the above principles of finality apply in this situation. Unlike routine discovery orders entered in litigation under the Federal Rules, Rule 2004 examinations do not take place within the context of a single litigated dispute. Rule 2004 is a broad discovery device intended to uncover information which may lead to the later initiation of litigation within the bankruptcy proceedings. There is no opportunity for appeal after a final ruling in the underlying litigation, as in civil cases, because there is no underlying litigation to which the Rule 2004 examination attaches. Taken to the extreme, if the traditional rules of finality apply, a party could not appeal a Rule 2004 order until the bankruptcy case is closed.
For this reason, as I have outlined in connection with No. 90-K-1863, a number of courts have permitted a direct appeal from a Rule 2004 order.
Cf. Securities Investor Protection Corp. v. Christian-Paine & Co.,
Finally, this appeal is a suitable candidate for interlocutory review. At least one court has held that a party requesting a protective order limiting access to testimony produced in Rule 2004 examinations on the basis of the attorney-client privilege has the burden of “showing that a protective order is the least intrusive means of achieving the goals of protecting the fairness of the judicial process.”
In re DeLorean Motor Co.,
C. Motions to Strike.
Intercontinental moves to strike the Trustee’s reply brief in support of its motion to dismiss these appeals. The Trustee requested leave to file the brief, which I granted although it was outside of the time limits of Local Rule 408 D. His action was not improper. Intercontinental also moves to strike the Trustee’s affidavit relating to the emergency motions for stay. Since I have ruled substantially in Intercontinental’s favor on both motions, it was not prejudiced by this filing. The motions to strike are denied.
Accordingly, IT IS HEREBY ORDERED that the Trustee’s motion to dismiss No. 90-K-1863 is GRANTED, and
FURTHER ORDERED that the Trustee’s motion to dismiss No. 91-K-638 is DENIED, and
FURTHER ORDERED that Intercontinental’s emergency motion for stay in No. 90-K-1863, considered as a motion for stay of the bankruptcy court’s ruling in No. 91-K-638, is GRANTED with respect to the Rule 2004 examinations of the officers and employees of Intercontinental and DENIED with respect to all other Rule 2004 examinations not previously stayed, and
FURTHER ORDERED that Intercontinental may amend its designation of record and statement of issues on appeal in No. 91-K-638 on or before May 31, 1991 to include matters relating to the issues raised in the above emergency motion for stay; the Trustee may amend its designation on or before 10 days after Intercontinental’s amendment, and
FURTHER ORDERED that Intercontinental’s motion to strike the Trustee’s reply brief and affidavit are DENIED.
Notes
. Intercontinental argues that the Tenth Circuit’s ruling in
Eddleman v. United States Department of Labor,
. For example, the court cited
In re Table Talk, Inc.,