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Bankruptcy Chat: Amendments proposed for Rule 2004

The Advisory Committee on Rules of Bankruptcy Procedure is considering the adoption of amendments to Bankruptcy Rule 2004 that would incorporate into document requests made in bankruptcy proceedings “proportionality” restrictions that are similar to those found in Federal Rule of Civil Procedure 26(b)(1).

Scope of Discovery in Bankruptcy

Discovery in bankruptcy cases is often much broader than discovery in other civil cases. A creditor in a bankruptcy case can question the debtor under oath during the first meeting of creditors or during a Rule 2004 examination. The creditor also may pursue full discovery after an adversary proceeding has been initiated.

Rule 2004 examinations are exclusive to bankruptcy proceedings and are perhaps the broadest discovery devices available to litigants under federal law. They have rightly been called “fishing expeditions.” However, once an adversary proceeding is filed, discovery is subject to limitations imposed by the Federal Rules of Civil Procedure.

Proportionality in Civil Cases

On December 1, 2015, Federal Rule of Civil Procedure 26 was amended to narrow the scope of discovery in civil litigation. The amended rule requires that discovery requests be “proportional to the needs of the case.” It replaced the previous, broader statement that a discovery request may be “reasonably calculated to lead to the discovery of admissible evidence.”

Six factors are to be considered when evaluating whether requested discovery is proportional to a case. These are:

  • the importance of the issues at stake in the action;
  • the amount in controversy;
  • the parties’ relative access to relevant information;
  • the parties’ resources;
  • the importance of the discovery in resolving the issues; and
  • whether the burden or expense of the proposed discovery outweighs its likely benefit.

In addition, Rule 26 provides that “electronically stored information,” or ESI, must be given to opposing parties as part of the mandatory initial disclosures. Rule 26 is incorporated by reference into Bankruptcy Rule 7026.

Proportionality in Rule 2004 Examinations

As originally proposed, the amendments to Bankruptcy Rule 2004 would have incorporated the proportionality factors of Rule 26 on requests for the production of documents and ESI in connection with Rule 2004 examinations. In addition to the six factors listed above, a seventh factor would be added for the purpose for which the request is being made. The original amendments were recommended by the Business Law Section of the American Bar Association.

Committee members were generally in favor of adopting limitations on document and ESI requests if the costs and efforts of production were disproportionate to the needs of the case, but the Committee members wanted to preserve the broad and relatively unconfined nature of Rule 2004 examinations. Consequently, the Committee decided to incorporate the concept of proportionality, but the version of the rule approved for publication would give judges the flexibility to interpret and impose the restrictions. As amended, Rule 2004 would require that a request for the production of documents or ESI in connection with a Rule 2004 examination be proportional to the needs of the case and of the party seeking production, but the rule does not specify the factors that should be considered in making that determination.

A publication date has not yet been announced. Proposed amendments to the federal rules of procedure are published for public comment at http://www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment.

Feedback on “Restyling” Sought

The Advisory Committee on Bankruptcy Rules is accepting comments on a proposal to “restyle” the Bankruptcy Rules. The restyling is similar to changes made in recent years to other federal rules which, according to the Committee, have made the rules “simpler, more understandable and easier to use.” Feedback must be received by June 15, 2018. More information and a link to the comment form are available at http://www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment/invitation-comment-restyle-federal-rules.