Opinion
Case No. 399-02649
September 15, 2001
MEMORANDUM ORDER
This matter is before the court on the motion of numerous defendants to "MODIFY ORDER (1) ESTABLISHING OMNIBUS INITIAL FILING AND PRETRIAL PROCEDURES FOR ADVERSARY PROCEEDINGS UNDER 11 U.S.C. § 544, 547, 548 OR 553, AND CERTAIN OTHER ADVERSARY PROCEEDINGS; (2) GRANTING AUTHORITY, PURSUANT TO F.R.B.P. 9019, TO COMPROMISE AND SETTLE SUCH ACTIONS; AND (3) GRANTING AUTHORITY TO ABANDON CERTAIN DE MINIMIS CLAIMS AND CAUSES OF ACTION." Specifically, the defendants seek modification of certain discovery provisions in the order as well as permission to file dispositive motions and/or requests for settlement conferences. The defendants complain that the Adversary Procedures Order are one-sided in favor of the debtor, by requiring full compliance on all discovery rules for the defendants, while excusing the debtor of certain requirements. For the reasons more particularly described herein, the court denies the defendants' motion.
Some 50 defendants seek modification of the Procedures Order. Those defendants are represented by Robert Goodrich, Ronald Steen, Lynda Jones, Robert Sullivan, Edwin Walker, Gail Reese (not proceeding with motion due to changed circumstances). John Lamb, William Norton, William O'Bryan, and Kevin Gray. In addition to these defendants who filed the motion, several other defendants stated in open court that they wished to request the same relief. The court indicated that all wishing to "pile on" to the current motion, would be heard and that they would be included in this ruling. For convenience, the court will refer to all defendants collectively as "defendants."
In order to attempt to streamline the process of filing almost 1200 adversary proceedings pursuant to 11 U.S.C. § 544, 545, 547, 548 and 553, the debtors filed a motion seeking to establish special procedures as to, inter alia, (1) intake procedures, (2) procedures for sealing certain adversary proceedings, (3) the issuance and service of process, (4) the scheduling and administration of pretrial conferences, (5) the filing of responses and noticing of defaults, (6) discovery procedures, and (7) the filing of joint pretrial statements. In addition, the debtors sought authority to settle claims on certain enumerated conditions.
In addition, the debtors sought authority to abandon certain de minimis claims rather than seek adversary proceedings to recover them. This portion of the Procedures Order is not in dispute.
The debtors' motion set forth several specific goals in establishing the procedures for these adversary defendants, specifically:
(a) improving the judicial and administrative efficiency;
(b) predictability concerning how the Adversary Proceedings will be handled;
(c) predictability concerning when hearings and pretrial conferences will beheld;
(d) economies of scale for the administrative costs to the Debtors' estate in prosecuting the Adversary Proceedings; and
(e) clarification of the obligations and the responsibilities of the parties to the Adversary Proceedings with respect to the efficient and timely prosecution of the Adversary Proceedings.
Debtor's "Motion for Order (I) Establishing Omnibus Initial Filing and Pretrial Procedures for Adversary Proceedings under 11 U.S.C. § 544, 545, 547, 548 or 553 and Similar Adversary Proceedings, (II) Granting Authority, Pursuant to Fed.R. Baukr. P. 9019, to Compromise and Settle Such Actions, and (III) Granting Authority to Abandon Certain De Minimis Claims and Causes of Action, Docket Number 3494, (Filed February 7, 2001) at pg. 6.
Specifically with regard to pretrial scheduling matters, the debtors requested and were granted permission to limit times available for hearings and pretrial conferences. As was argued by the debtors' in their motion, these dates provide for predicitability for both the court and the parties as to when hearings will be held. The Order established dates to hold "first pretrial conferences" whereby the following is to occur:
(1) if a response has been filed by the Response Deadline, the Adversary Proceeding will be set for a Second Pretrial Conference
(2) if no Response was filed and if appropriate under the procedures, a default judgment would be entered against the defendant.
(3) the parties can agree, prior to the First Pretrial Conference, to other disposition including compromise and settlement.
All Adversary Proceedings not otherwise resolved will be set over to a Second Pretrial Conference that is to occur no sooner than 120 days after the First Pretrial Conference. At the Second Pretrial Conference, the court, in consultation with the parties shall (i) set a trial date, (ii) establish any other necessary pretrial procedures, deadlines and hearing dates, including discovery deadlines and procedures, (iii) define and narrow contested factual and legal issues and (iv) entertain any requests by the parties for a settlement conference.
With respect to Discovery, the debtors requested and were granted permission to modify discovery as follows:
(a) staying all discovery, except as expressly provided in the Order and until the Court orders otherwise at or after the Second Pretrial Conference unless for good cause shown;
(b) providing that the parties are not required to respond to any discovery requests before 30 days following the last scheduled Second Pretrial Conference unless for good cause shown;
(c) setting forth what documents the debtors are required to produce such as: (1) copies of the debtors' schedules, statement of affairs, and any amendments thereto; (2) printouts of historical payment information for such defendants for December 1997 to the petition date; (3) copies of audited financial statements fo the last fiscal year ending prior to the petition date and quarterly financial statements filed with the SEC during the one year period to e petition date.
(d) setting forth that how the documents will be provided to the defendants;
(e) setting forth that no later than 60 days after the First Pretrial Conference, the defendants shall make all required disclosures under Local Rule 7026-1b(1)(i);
(f) requiring that not later than 60 days prior to trial, that the debtors and defendants complete all discovery disclosures pursuant to Local Rule 7026-1b(iii); and
(g) requiring that the debtors and defendants shall be required to complete all pretrial disclosures pursuant to Local Rule 7026-1b(2) no later than 10 days prior to trial,
The Order also provides that "the filing of all pretrial motions and the applicability of all other pretrial deadlines and procedural requirements under the Bankruptcy Rule, Local Rule or other orders in these Chapter 11 cases, shall be stayed pending further order of the Court after the Second Pretrial Conference in an Adversary Proceeding." Finally, the Order provides that any defendant "may file a motion to alter or amend these procedures for a particular Adversary Proceeding or for a particular set of Adversary Proceedings for cause shown."
The defendants argue in their motion, and in court, that they are required to wait six months after the pretrial conference to take discovery or file dispositive motions because discovery is stayed until 60 days after the first pretrial conference which did not take place until almost four months after filing. Further, they argue that the procedures unfairly limit discovery by providing that the debtors make only minimal discovery while the defendants must fully comply with all discovery requirements. The defendants specifically complain that the debtors are not required to produce information relating to solvency, historical data pertaining to an ordinary course of business defense, and/or documents relating to a new value defense.
The debtors respond reasoning that the motion is premature at best, and furthermore, the pretrial procedures have proven extremely successful to date. Thus far, 484 adversaries have been tentatively resolved or stayed pending negotiation, 176 actions have been settled, default judgments have been entered in 110, and 376 remain unresolved. The debtors argue that these procedures were established with the goal of allowing the debtor ample time to negotiate a consensual plan of reorganization, and that the next two months are critical to the process. The need to devote all efforts toward the reorganization negotiations and the success of 622 of the 1,152 adversaries being sealed or resolved within six months of filing demonstrates the need for these established procedures.
Section 105 (a) of the Bankruptcy Code grants the courts broad authority to enforce the provisions of the Bankruptcy Code. That section provides:
The court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent the abuse of process.
11 U.S.C. § 105 (a) (2001). Clearly, this Code Section envisions the court's authority to manage its docket, conduct its calendar and schedule hearings as is appropriate. The United States Supreme Court has recognized this authority on numerous occasions. See e.g., Link v. Wabash R.R. Co., 370 U.S. 626, 630, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962) (Courts have inherent power to ensure "the orderly and expeditious disposition of cases."). Furthermore, courts of appeal have been extremely reluctant to interfere in a trial court's decisions regarding the management and conduct of litigation. See e.g., Nadonal Hockey League, 427 U.S. at 642, 96 S.Ct. at 2780-81 ("We must respect the discretionary responsibility of a district court to manage the conduct of the litigation in its courtroom and to use dismissal when appropriate; we review only for an abuse of that discretion); Garner v. Kinnear Mfg. Co., 37 F.3d 263, 269 (7th Cir. 1994) (same); In re United States Abatement Corp., 39 F.3d 556 (5th Cir. 1994) ("Thus, an appellate court should be loathe to substitute its judgment for the bankruptcy court regarding such matters of docket management absent an abuse of discretion."); In are Stone, 986 F.2d 898, 903 n. 3 (5th Cir. 1993) (noting that decisions regarding docket management are subject to an abuse of discretion standard); accord Penn v. Iowa State Bd. of Regents, 999 F.2d 305, 307 (8th Cir. 1993) ("District courts have the duty and power to manage their dockets and we wilt not interfere in the absence of an abuse of discretion.").
In this matter, the court finds that the procedures, thus far to date, (1) have aided in the administration for the court of the numerous adversaries; (2) have eased the burden of the clerk's office by an organized and efficient handling of the mountains of paper accompanying the voluminous filings; (3) have resulted in an expeditious and fair resolution of hundreds of adversary proceedings to date; (4) have organized and established a definitive time-line for the litigation or resolution of the remaining adversaries, and (5) have provided, in this court's opinion, a fair and reasonable working outline from all matters from the initial filing, to discovery and ultimately conclusion of these proceedings. The issues of discovery are premature at best, and this court is extremely satisfied that the procedures are both fair and expeditious. The speed at which matters are being accomplished is remarkable for a case of this size and complexity, and no defendant has shown "cause" to alter any of the carefully examined procedures for handling these adversary proceedings.
The filing fees for the adversaries were approximately $171,750.00. The clerk's office dedicated two full days and six employees to check, stamp in, and sort. Three days were spent scanning and saving all filings to a PDF format. One employee spends over 75% of her work week only on Service Merchandise matters. The Clerk's Office also has docketed and processed 914 Summons and Notices of Pretrial Conferences, 713 Motions, 408 Answers, 670 Orders, and 25 Motions to Withdraw the Reference taking approximately 1 1/2 hours each. These figures account for only some of the adversary filings. and are in addition to the some 5250 docket entries in the main case, and all other filings in this district.
This Order is without prejudice for a defendant or defendants to demonstrate "cause" at a future hearing. The court finds that at this time, however, the motion to modify is without merit and denies the defendants' request for relief.
The debtors stated in court and in their response to the motion, that they have no procedural objection to the filing of Rule 9011 motions. The court therefore modifies the order to permit the filing of Rule 9011 motions if in fact, the procedures order did prohibit the filing of such.
It is, THEREFORE, so ordered.