In re Paddock Enters.

Paddock Enterprises. LLC

No. 20-10028

United States Bankruptcy Court, D. Delaware

September 22, 2022

Letter Ruling Re. ECF 1518, 1543

Before me are two motions regarding three separate debtors in bankruptcy proceedings in North Carolina-Bestwall LLC,^[1] Aldrich Pump LLC^[2] and DBMP LLC.^[3] Each of these three North Carolina debtors seek documents from Paddock Enterprises, LLC (or its agent), currently, a reorganized debtor in a case before me. Paddock as well as the Owens-Illinois Asbestos Personal Injury Trust ("O-I Trust"), the Owens-Illinois Asbestos Trust Committee ("O-I Committee") and the Future Claims Representative ("FCR") oppose the document requests.

Background^[4]

Bestwall and Aldrich Pump separately seek electronic information and data contained in any claims database within Paddock's possession, custody or control "whose purpose is or was to track mesothelioma claims asserted against Paddock or Owens-Illinois before the Petition Date."^[5] Both Bestwall and Aldrich Pump seek this information by way of subpoenas and after certain proceedings in their respective bankruptcy cases. While the circumstances of their separate bankruptcy cases differ, the differences do not affect this ruling.

Separately Bestwall and DBMP seek production of ballots that were submitted in the Paddock bankruptcy case in connection with confirmation of Paddock's Plan.^[6]

On July 27, 2022, Paddock filed Reorganized Debtor Paddock Enterprises, LLC's Motion for a Protective Order in Connection with Subpoenas and Requests for Claims-Related Information, or, in the Alternative, Motion to Quash [ECF 1518]. On August 5, 2022, the O-I Trust, O-I Committee and the FCR filed their own Joinder and Joint Motion of the Owens-Illinois Asbestos Personal Injury Trust, the Owens-Illinois Trust Advisory Committee and the Court-Appointed Future Claimants' Representative for a Protective Order or to Quash Subpoenas [ECF 1543], which, together with the Reorganized Debtor's motion is referred to herein as the "Motion to Quash."

Paddock's self-titled designation as a Reorganized Debtor is correct. Paddock emerged from bankruptcy on July 8, 2022, when the Plan went effective. Notwithstanding, this saga did not begin post-bankruptcy. For Bestwall, it began at least in March 2022 when Bestwall served a subpoena on Paddock. For Aldrich Pump, it began in April 2022 when Aldrich Pump filed a motion in its bankruptcy case seeking permission to serve subpoenas. Notwithstanding, neither Paddock, the Paddock asbestos claimant committee or the Paddock FCR took action in this case prior to filing the Motion to Quash.

A. The Subpoenas

Jurisdiction and Standing

Before getting to the substance of the Motion to Quash, I must determine whether I have jurisdiction to hear it. Bestwall and Aldrich Pump argue that I do not have jurisdiction over the Motion to Quash because only the compliance court, as that term is used in Rule 45, has jurisdiction to rule on any motions seeking to quash or otherwise impact a subpoena. Paddock argues that I have jurisdiction because the Motion to Quash is related to its bankruptcy case as I must interpret the Plan and/or Plan documents, specifically, the Asbestos Records Cooperation Agreement [ECF 1295-2]. The O-I Trust the O-I Committee and the FCR also argue that under the Ballon Doctrine,^[7] only this court can authorize discovery against Paddock, which they argue is an estate fiduciary.

On August 31, I held an oral argument during which the jurisdictional issues were discussed at length. I continue to believe, as I expressed then, that Rule 45 is not jurisdictional in nature. Rules do not confer jurisdiction. As the Supreme Court noted (albeit in a different context) Bankruptcy Rule 9030 and Civil Rule 82 both provide that the rules do not extend or limit the jurisdiction of the courts.^[8] Instead, rules prescribe the method by which jurisdiction is to be exercised. Notwithstanding, rules can be relaxed when the ends of justice so require, but it appears relaxing the rules should be done sparingly.^[9] I say "apparently" because no one briefed this topic.

Under Rule 45, the compliance court is the court charged with addressing a motion to quash. Again, while I had no briefing on the specific point, it does appear that the party issuing the subpoena unilaterally determines (certainly in the first instance) the court of compliance within the guardrails set in subsection (c). For a document request, a subpoena may command a production of documents, including electronically stored documents, within 100 miles of where the person resides, is employed or regularly transacts business. The place of service specified in the subpoenas issued by counsel for both Bestwall and Aldrich Pump lies within the Eastern District of Michigan.^[10]

None of the cases cited by Paddock convince me that I, as the court sitting in Delaware and not the compliance court under Rule 45, can rule on the motion to quash if I were relying solely on Rule 45 for authority. In SBN Fog, Judge McNamara does state: "this Court, as the 'issuing court' simply is not authorized by any statute or rule of civil or bankruptcy procedure to interject itself into a discovery dispute involving the production of documents where the 'place of compliance' is not within Colorado and the respondents are not the Debtors "^[11] But, the highlighted part of that sentence is, at best, dicta, as the party serving the subpoena was the committee in the case before him and the subpoenaed parties were "non-parties" to the bankruptcy case. He, too, rejects, the idea that Rule 45 is jurisdictional, and frames the issues as one of authority. I agree with Judge McNamara in that respect and conclude that Rule 45 does not provide me with authority to adjudicate the Motion to Quash.

Paddock alternatively argues that its motion is really one for a protective order under Rule 26. But Paddock does not state how that rule provides authority for me to entertain the subpoenas. Rule 26 governs discovery among parties and subsection (c), not surprisingly, provides that a party from whom discovery is sought may seek a protective order in the court where the action is pending. But, this is not discovery among parties and the Bestwall and Aldrich Pump bankruptcy cases are not pending here.

Perhaps recognizing this, Paddock also argues that jurisdiction lies in this court as the subpoena is "related to" its own bankruptcy case. In its reply,^[12] Paddock argues that this is not a routine discovery dispute unrelated to the chapter 11 case, but the discovery seeks information of the claims that were the very reason Paddock filed its case such that the "close nexus" required by Resorts International^[13], is the information itself. Paddock further argues that the "interplay" of the subpoenas with the Plan, confirmation order and Asbestos Cooperation Agreement provides the court with subject matter jurisdiction. The O-I Trust, the O-I Committee and the FCR join and adopt these arguments. They also argue that the Barton Doctrine required the North Carolina debtors to come to this court to seek permission to serve the subpoenas on Paddock. The North Carolina debtors assert this is a simple third-party discovery dispute.

I'm not prepared to find in this case that the Barton Doctrine applies as I need not do so. While it's a close call, I conclude that I have subject matter jurisdiction to hear the Motion to Quash. No one argued that there is not jurisdiction over third party discovery if a subpoena is served on a debtor during the course of the case.^[14] But, since the Motion to Quash was served post-confirmation, I need to explore that as well. In Resorts International, the Third Circuit states:

whether a matter has a close nexus to a bankruptcy plan or proceeding is particularly relevant to situations involving continuing trusts, like litigation trusts, where the plan has been confirmed, but former creditors are relegated to the trust res for payment on account of their claims. To a certain extent, litigation trusts by their nature maintain a connection to the bankruptcy even after a plan has been confirmed. Matters that affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan will typically have the requisite close nexus.^[15]

The Court further states:

where there is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution or administration of a confirmed plan or incorporated litigation trust agreement, retention of post-confirmation bankruptcy court jurisdiction is normally appropriate.^[16]

Looking only at the subpoenas themselves, one could argue that these are garden variety discovery disputes, which affect neither the implementation nor administration of a confirmed plan or incorporated trust agreement. But, that is not the case. The timing of the subpoenas, the subject matter of the subpoenas, the confidentiality and privilege issues raised by the subpoenas, and even the issue of standing regarding who can oppose the production of documents show that the subpoenas affect the implementation and administration of the recently-confirmed Plan which is in its nascent stages.

Having reviewed the Asbestos Records Cooperation Agreement and heard the testimony, I find the following. The Reorganized Debtor is required to provide the Trust with Access to the Asbestos Records (as both capitalized terms are defined in the agreement). The database that is the subject of the subpoenas is part of the Asbestos Records. For electronic records, such as the database, the Asbestos Records are to be provided by electronic media, electronic transfer or by direct access to a database. There...