Bankruptcy Rule 2004 - What is it? (Part 1)

Bruce W. Akerly - Partner
Feb 20 2020

Bankruptcy Rule 2004 provides, in pertinent part:

(a) EXAMINATION ON MOTION. On motion of any party in interest, the court may order the examination of any entity.

(b) SCOPE OF EXAMINATION. The examination of an entity under this rule or of the debtor under §343 of the Code may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate, or to the debtor's right to a discharge. In a family farmer's debt adjustment case under chapter 12, an individual's debt adjustment case under chapter 13, or a reorganization case under chapter 11 of the Code, other than for the reorganization of a railroad, the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.

(c) COMPELLING ATTENDANCE AND PRODUCTION OF DOCUMENTS. The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.

On its face, Bankruptcy Rule 2004 permits “examination of any entity.” "Entity" is defined in the Bankruptcy Code to include “person, estate, trust, governmental unit, and United States trustee.” 11 U.S.C. § 101(15). Black’s Law Dictionary defines “examination” generally to mean interrogation of a witness. See Black’s Law Dictionary (4th ed. 1968).

Bankruptcy Rule 2004 does not specifically provide for paper discovery – e.g., interrogatories, requests for production, and requests for admission - although subsection (b) provides that Bankruptcy Rule 9016 may be used to compel the attendant of an examinee and “the production of documents.” Bankruptcy Rule 9016 provides: “Rule 45 Fed. R. Civ. P. applies in cases under the Code.” Arguably, therefore, the production of documents is only permitted in connection with an examination. Because a Bankruptcy Rule 2004 examination is not one taken under the Federal Rules of Civil Procedure, the temporal limitations in Federal Rule of Civil Procedure 30 and 34 (30 days to produce) do not apply to a request for production in connection with an notice of examination under Bankruptcy Rule 2004. Our firm has issued interrogatories and requests for production and taken depositions under the rule without objection.

While Bankruptcy Rule 2004 provides that the scope of examination “may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate, or to the debtor's right to a discharge,” see Fed. R. Bankr. P. 2004(b), courts have held that discovery under Bankruptcy Rule 2004 is broader than that typically permitted under the Federal Rules of Civil Procedure, amounting to a veritable “lawful fishing expedition.”

Bankruptcy Rule 2004 affords both debtors and creditors broad rights of examination of a persons and entities with respect to the business and financial affairs of the debtor and administration of the estate. However, its scope is not limitless. For example, examinations cannot be used to harass or oppress the party and should not be used to obtain information for use in an unrelated case or proceeding pending before another tribunal. In re Snyder, 52 F.3d 1067 (5th Cir. 1995) (citations omitted). Under the Federal Rules of Civil Procedure, discovery is generally limited to information which is relevant to the claims asserted or is likely to lead to the discovery of relevant information. See Fed. R. Civ. P. 26(b)(1).

This is why counsel for the respondents/defendants in contested matters/adversary proceedings frequently object to the use of Bankruptcy Rule 2004 discovery in evidentiary hearings/trials. Next month we will discuss uses of Bankruptcy Rule 2004 discovery in collateral proceedings.