In In re Golden Sphinx Ltd., 2023 WL 2823391 (Bankr. C.D. Cal. Mar. 31, 2023), the U.S. Bankruptcy Court for the Central District of California denied a motion filed by a creditor of a chapter 15 debtor seeking discovery from a bank that had provided financing to one of the debtor's affiliates. The bankruptcy court concluded that: (i) litigation and discovery regarding a debtor's assets is best pursued in the foreign bankruptcy proceeding, rather than an ancillary case under chapter 15, because the "whole point of Chapter 15 is to avoid a multiplicity of international proceedings and instead focus most litigation in the foreign main proceeding"; and (ii) the discovery request was an overbroad and inappropriate "fishing expedition" under Rule 2004 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and represented an effort to give the creditor an unfair advantage in non-bankruptcy litigation. However, in so ruling, the court held that Bankruptcy Rule 2004 applies in chapter 15 cases (as well as cases under other chapters of the Bankruptcy Code) and that, under appropriate circumstances, a party other than the debtor's foreign representative may obtain discovery in a chapter 15 case under Bankruptcy Rule 2004.
Discovery in Bankruptcy Cases
Bankruptcy Rule 2004 provides a broad-ranging discovery mechanism in bankruptcy cases. It states that "[o]n motion of any party in interest, the court may order the examination of any entity." Such an 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." In addition, in a non-railroad "reorganization case under chapter 11" (among other cases), 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."
Discovery may also be sought in "adversary proceedings" (see Bankruptcy Rule 7001 et seq.) or "contested matters" (see Bankruptcy Rule 9014) commenced during a bankruptcy case, and in certain other contexts, such as contested involuntary bankruptcy or chapter 15 petitions. Such discovery is governed by Bankruptcy Rules 7026-7037 and 9016, which incorporate many of the discovery procedures under the Federal Rules of Civil Procedure that apply to other kinds of federal litigation. These rules include specific procedures governing disclosure, witnesses, subpoenas, depositions, interrogatories, document production, physical and mental examinations, requests for admission, and other discovery-related matters.
Discovery in Chapter 15 Cases
In a chapter 15 case, section 1521(a) of the Bankruptcy Code provides that, upon recognition by a U.S. bankruptcy court of a "foreign main" or "foreign nonmain" proceeding, the court may, "at the request of the [debtor's] foreign representative," grant any appropriate relief, including "providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities." 11 U.S.C. ' 1521(a)(4). See In re Millennium Glob. Emerging Credit Master Fund Ltd., 471 B.R. 342, 346 (Bankr. S.D.N.Y. 2012) (discovery under section 1521(a)(4) "enables a Foreign Representative to take broad discovery concerning the property and affairs of a [foreign] debtor").
Where discovery is requested, however, section 1522 provides that the court may grant such relief "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected." See In re AJW Offshore, Ltd., 488 B.R. 551, 561 (Bankr. E.D.N.Y. 2013) (discovery under section 1521(a)(4) "will only be permitted by motion on notice with an opportunity for hearing to the adverse parties and by making examination and production of documents ..., with any discovery ... allowed to be subject to [the] conditions imposed in accordance with ' 1522").
Discovery under section 1521(a)(4) need not "concern the preservation or recovery of property in the United States" because chapter 15 "is not an independent in rem proceeding but an ancillary proceeding designed to assist a foreign representative in administering the foreign estate." Millennium, 471 B.R. at 347; In re Fairfield Sentry Ltd. Lit., 458 B.R. 665, 679 n.5 (S.D.N.Y. 2011) (stating that section 1521(a)(4) "allows for discovery in the United States whether or not a debtor has assets here").
Chapter 15 discovery is not limited to documents located in the United States but also extends to documents in the possession, custody, or control of a party, including documents held by a party's attorneys or agents. See In re Markus, 607 B.R. 379, 389 (Bankr. S.D.N.Y. 2019), aff'd in part, vacated in part and remanded, 615 B.R. 679 (S.D.N.Y. 2020). A subpoena issued under Fed. R. Civ. P. 45, which is made applicable to all bankruptcy cases by Bankruptcy Rule 9016, requires the production of documents responsive to the subpoena, wherever the documents may be located. Sergeeva v. Tripleton Int'l Ltd., 834 F.3d 1194, 1200 (11th Cir. 2016); In re Hulley Enters., 358 F. Supp. 3d 331, 345 (S.D.N.Y. 2019); Marcus, 607 B.R. at 391.
Most of the ordinary discovery mechanisms applying to adversary proceedings or contested matters expressly apply to contested recognition petitions in chapter 15 cases (see Bankruptcy Rule 1018). In addition, outside the contested recognition petition context, many courts have concluded that broad discovery under Bankruptcy Rule 2004 is available in chapter 15 cases as a form of "additional assistance" that can be granted in the court's discretion under section 1507(a) of the Bankruptcy Code...
