Opinion
CASE NO.: 17-22665
07-05-2019
IN RE: Andrew Young et. al. Andy's Truck and Equipment Co., Inc.; D.A.Y. Investments, LLC; Gary II, LLC; Gold Coast Rand Development Corp.; and Surplus Management Systems, LLC, Debtors.
(Jointly Administered) Chapter 11 ORDER GRANTING MOTION FOR 2004 EXAMINATIONS
On October 30, 2018, the Debtors in this jointly administered case filed a motion for entry of an order authorizing examinations, pursuant to Bankruptcy Rule 2004, of the following entities: Lake County (Indiana) Treasurer, Lake County Auditor, Lake County Assessor, Calumet Township Assessor, and the City of Gary (Docket Entry #343). Subsequently, on November 8, 2018, the Court entered an order which gave the foregoing parties 21 days to object to Debtors' request (Docket Entry #349). On November 26, 2018 the Lake County Treasurer (the "Treasurer"), by counsel, filed its objection.
In its objection, the Treasurer alleges that Rule 2004 is being utilized as an "impermissible....substitute for discovery." Although Debtors have not filed an adversary proceeding or initiated a contested matter as of yet, the Treasurer asserts that given the history between the parties, Debtors "are prepared to, and will, object to the county's proof of claims." The Treasurer further posits that, pursuant to N.D. Ind. L.B.R. B-9013-1, Debtors should have filed separate motions as to each entity. On February 27, 2019, the Court held a pre-hearing conference at which time the parties reported that they were waiving a formal evidentiary hearing and that the Court could proceed to rule on the Treasurer's objection.
Bankruptcy Rule 2004 allows a party in interest to request an examination of any entity concerning "any matter which may affect the administration of the debtor's estate...". See Fed. R. Bankr. P. 2004(a)-(b). An examination under the foregoing rule has been characterized as a broad "fishing expedition" into a party's affairs for the purpose of obtaining information relevant to the administration of the bankruptcy estate. In re Handy Andy Home Imp. Centers, Inc., 199 B.R. 376, 380 (Bankr. N.D. Ill. 1996) (internal citations omitted). Rule 2004 is substantially a "pre-litigation device for assessing whether grounds exist to commence an action...". Id. (citing In re French, 145 B.R. 991, 992 (Bankr. D. S.D.1992)). In other words, the rule essentially allows a party to determine whether litigation is warranted, as opposed to needlessly incurring the time and expense of having to initiate formally an adversary proceeding or contested matter.
Whether or not the court authorizes a 2004 examination is a matter committed to its discretion and such motions are often considered ex parte. In re Sheetz, 452 B.R. 746, 748 (Bankr. N.D. Ind. 2011). The rule contemplates only that the court may order the examination of any entity; cooperation in the examination process is then secured with a subpoena, issued under Rule 45 of the Federal Rules of Civil Procedure. Id. If the target of the examination believes that the subpoena is inappropriate, it may take advantage of the procedures outlined there. Id. at 748-49. Lastly, although not required by the specific text of Rule 2004, there should be "sufficient cause" for the examination. Id. at 749.
In the matter before the Court, Debtors must propose a plan of reorganization the terms of which will, in part, be dependent upon the allowed claims of their creditors. Debtors wish to investigate the amounts asserted in the proofs of claim filed by the Treasurer and City of Gary. In order to accomplish this, Debtors requested that the listed entities produce documents, which may or may not substantiate these two claims, and also be subject to an examination concerning the same. Short of utilizing Rule 2004, the only other way to compel access to such information would be for Debtors to object to the proofs of claim. A central purpose of Rule 2004 is to prevent such a situation. Additionally, since a proof of claim constitutes prima facie evidence as to both validity of the debt and the amount due, the burden is on the objectant to come forward with information that will overcome the evidentiary effect of the claim. See In re Sheetz, 452 B.R. at 749. Therefore, unless Debtors are given access to information before they object, they likely would be unable to formulate properly any objections they may have with the requisite specificity.
Finally, the Treasurer is correct in that the better practice would have been for Debtors to file separate motions requesting a 2004 examination as to each entity. However, all the entities were properly served and given an opportunity to object to the motion, and except for the Treasurer, no other objections were filed. For the Court now to require that five separate motions be served and filed would needlessly further delay this matter.
Based upon the foregoing, the Treasurer's objection is overruled and Debtors' motion for entry of an order authorizing examinations, pursuant to Bankruptcy Rule 2004, is GRANTED. Debtors are hereby authorized to examine the Lake County Treasurer, Lake County Auditor, Lake County Assessor, Calumet Township Assessor, and the City of Gary pursuant to Bankruptcy Rule 2004.
All of the foregoing is hereby ordered, adjudged, and decreed in Hammond, Indiana on July 5, 2019.
/s/ James R. Ahler
James R. Ahler, Judge
United States Bankruptcy Court Distribution:
Debtors, Attorney for Debtors
Trustee, US Trustee, All counsel of record