Opinion
22-50080
12-13-2022
IN RE: Andrew Steven Marks, Debtor.
ORDER DENYING CREDITOR KIMBERLY HARLESS' MOTIONS FOR RULE 2004 EXAMINATION OF TERRI LEVINE AND FOR PRODUCTION OF DOCUMENTS (DOCS. #65 AND #73)
C. KATHRYN PRESTON UNITED STATES BANKRUPTCY JUDGE.
This matter came on for consideration of Creditor Kimberly Harless' Amended Joinder to Trustee's 6/16/22 Motion for Rule 2004 Examination of Terri Levine and for Production of Documents or First Amended, Alternative Motion for Separate Examination of Terri Levine (Doc. #65) (the "Initial Motion"), Creditor Kimberly Harless' Motion for a Rule 2004 Examination of Terri Levine and for Production of Documents (Doc. #73) (the "Motion," and together with the Initial Motion, the "Motions"), the Combined Memorandum in Opposition to Rule 2004 Examination Motions Filed by Creditor Kimberly Harless (Doc. #83), Creditor Kimberly Harless' Reply in Support of 2004 Examination of Terri Levine and for Production of Documents (Doc. # 86), and Debtor's Response in Opposition to Creditor Kimberly Harless' Motion for 2004 Examination of Terri Levine and for Production of Documents (Doc. # 88) at a hearing held on October 27, 2022. Appearing at the hearing were Patrick M. Quinn on behalf of Creditor Kimberly Harless, Richard K. Stovall on behalf of Ms. Levine, and John W. Kennedy on behalf of the Debtor.
The Motions are not particularly specific, stating only that Ms. Harless "would like to question Terri Levine about the Debtor's involvement in her businesses for no pay," and that "a more in-depth in-person inquiry is required to thoroughly investigate the Debtor's assets and financial condition." However, the Motions also request that Ms. Levine produce certain documents, and the list is quite broad. It includes, but is not limited to, documentation pertaining to leases or tenancy agreements or other interests in real property, documents pertaining to gifts received from the Debtor, documents pertaining to financial accounts, documents pertaining to any funds transferred to Ms. Levine by or on behalf of the Debtor, documents pertaining to Sock Hop Soda Shop, and documents pertaining to publications by Ms. Levine or the Debtor, including any Facebook posts.
Notwithstanding the broad scope of the Motions, at the hearing, Mr. Quinn represented to the Court and the other parties that Ms. Harless wished to examine Terri Levine only as to Ms. Levine's involvement in the former food truck business, Sock Hop Soda Shop, and the assets of that business. Mr. Quinn further represented that it was not Ms. Harless' intent to rehash any of Ms. Levine's testimony from the Rule 2004 Examination conducted by the Chapter 7 Trustee and the United States Trustee on July 18, 2022. According to Mr. Quinn, Ms. Harless had not been able to acquire the audio recording of the prior Rule 2004 Examination or a written transcript of same, despite diligent effort. Based on the representations of counsel, the Court gave counsel for Ms. Harless thirty (30) days from the hearing to file a transcript of the Rule 2004 examination, at which time, the Court would determine whether Ms. Harless should be authorized to question Ms. Levine further at a subsequent Rule 2004 Examination. It later came to light that the Trustee had, in fact, sent an email to Ms. Harless' counsel, Rick L. Brunner, attaching an audio recording of the July 18, 2022 examination of Ms. Levine. Mr. Brunner did not receive the email and did not follow up with the Trustee or make additional requests for the recording or a transcript. The Court shortened the deadline for filing the transcript to November 7,2022.
Counsel for Ms. Harless, Rick L. Brunner, made a similar representation on page two (2) of Creditor Kimberly Harless' Reply in Support of 2004 Examination of Terri Levine and for Production of Documents (Doc. # 86) stating that "when a transcript was requested . . . there was no response to the request."
Counsel for Ms. Levine, counsel for the Debtor, and Mr. Quinn, as counsel for Ms. Harless, appeared by telephone, at a conference held on the record on October 28, 2022. At the telephonic hearing, it was revealed that counsel for the Chapter 7 Trustee had sent Mr. Brunner an email on August 29, 2022, with a copy of the audio recording of Ms. Levine's 2004 examination attached.
The transcript was filed on November 7, 2022, and the Court has had an opportunity to review it to determine whether counsel for the Chapter 7 Trustee sufficiently inquired into Sock Hop Soda Shop, LLC, and Ms. Levine's involvement in that business. During the 2004 Examination by the Trustee, Ms. Levine testified that she formed the business in 2014 or 2015; that it consisted of a 1950's style mobile ice cream truck; that she was the sole owner and manager of the business; that the business shut down in 2020 or 2021 due to the COVID pandemic; that the sole asset of the business was a 1997 truck; and that she sold the truck to an unidentified buyer in 2021 or 2022 for a few thousand dollars. She further testified she had friends and family help her in the business and that she sub-contracted as needed. The Debtor was among the friends and family that helped out, at least in the beginning. The Debtor's role was limited to singing, dancing, and scooping ice cream. She did not pay the Debtor for these contributions to the business.
"[W]hen a party other than the trustee seeks to duplicate the role of the trustee as set forth in section 704 of the Bankruptcy Code and other applicable law, that request smacks of harassment and, absent a showing to the contrary or special circumstances, must be denied." In re LLC 1 07CH112487 , 608 BR 830, 836 n. 11 (Bankr. N.D.Ill. 2019). When a nondebtor such as Ms. Levine is the target of a Rule 2004 Examination, and the nondebtor objects, as did Ms. Levine, the party seeking the Rule 2004 Examination must establish "good cause." See 9 Collier on Bankruptcy ¶2004.01[6] (16th 2022). "Although a Rule 2004 examination may be ordered ex-parte, once a motion to quash a subpoena is filed, the examiner bears the burden of proving that good cause exists for taking the requested discovery." Matter of Wilcher, 56 B.R. 428, 434 (Bankr. N.D.Ill. 1985). See also In re Millennium Lab Holdings II, LLC, 562 B.R. 614, 627 (Bankr. D. Del. 2016) and In re Dinubilo, 177 B.R. 932, 943 (E.D. Cal. 1993).
Good cause may exist when the examiner requires the requested information to establish his or her claim or if denial of the examination would cause the examiner injustice or undue hardship. Eplus, Inc. v. Katz (In re Metiom, Inc.), 318 B.R. 263, 268 (S.D.N.Y. 2004)(citations omitted). Determining whether good cause exists requires a totality of the circumstances approach which takes into account all relevant factors. In re Countrywide Home Loans, Inc., 384 B.R. 373, 393 (Bankr. W.D. Pa. 2008). The level of good cause that must be demonstrated varies depending on the level of potential intrusiveness into the nondebtor. Id.; In re DeShetler, 453 B.R. 295, 302 (Bankr. S.D. Ohio 2011).
There is nothing in the record to indicate that counsel for Ms. Harless would have asked different questions concerning Sock Hop Soda Shop or otherwise elicited additional information about the business or the lack of compensation paid to the Debtor. The record reflects that counsel for Ms. Harless was aware of the Rule 2004 Examination being conducted by the Chapter 7 Trustee; that counsel for Ms. Harless did not arrange for an attorney to be present at the trustee's examination; and that counsel for Ms. Harless failed to follow up on his request to counsel for the Chapter 7 Trustee for an audio recording or written transcript of the examination. Ms. Harless' attorney, Mr. Brunner, did not diligently attempt to obtain the 2004 Examination transcript or recording: he acknowledged at a hearing held November 22, 2022, that he did not follow up with the Trustee's attorney when (he believed) his request for a recording or transcript had gone unanswered and did not make a second request to the Chapter 7 Trustee's attorney for same. There is nothing in the record to indicate the existence of any special circumstances that would warrant a second Rule 2004 Examination, especially when the Chapter 7 Trustee's attorney has already covered the same ground in his July 22, 2022 Rule 2004 Examination about which counsel for Ms. Harless now wishes to question Ms. Levine.
Moreover, Ms. Harless has not established good cause for a second Rule 2004 Examination of Ms. Levine. Ms. Harless has not demonstrated that she needs information to establish her claim, or that denial of the Motions would cause her any injustice or undue hardship. The record reflects that, in addition to conducting a Rule 2004 Examination of Ms. Levine, the Chapter 7 Trustee has commenced an adversary proceeding against Ms. Levine to avoid and recover prepetition transfers of eight vehicles by the Debtor to Ms. Levine for no consideration. Ms. Levine consequently is already subject to the full panoply of discovery in the Chapter 7 Trustee's adversary proceeding. See Fed. R. Bankr. P. 7026-7036. Under the totality of the circumstances, the Court finds that the level of good cause Ms. Harless has shown, if any, is outweighed by the potential intrusiveness to Ms. Levine. The Court further finds that a second Rule 2004 Examination of Ms. Levine by counsel for Ms. Harless would be duplicative and serve no legitimate purpose.
Accordingly, it is
ORDERED AND ADJUDGED that Creditor Kimberly Harless' Amended Joinder to Trustee's 6/16/22 Motion for Rule 2004 Examination of Terri Levine and for Production of Documents or First Amended, Alternative Motion for Separate Examination of Terri Levine (Doc. #65) and Creditor Kimberly Harless' Motion for a Rule 2004 Examination of Terri Levine and for Production of Documents (Doc. #73) are DENIED.
IT IS SO ORDERED.