BEST PRACTICES IN LITIGATING ADVERSARY PROCEEDINGS AND CONTESTED - - PDF document

BEST PRACTICES IN LITIGATING ADVERSARY PROCEEDINGS AND CONTESTED MATTERS

David O. Simon, Esq. Kari B. Coniglio, Esq. Joseph M. Romano, Esq. Edward A. Bailey, Esq.

Best Practices in Litigating Adversary Proceedings and Contested Matters This panel will cover issues we frequently see in bankruptcy litigation, and recommendations for the best manner to address them, all in compliance with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. The issues will include:

• I. Contested Matters v. Adversary Proceedings (and when the latter are necessary)
• A. What’s the difference?: The difference between a contested matter and an adversary

proceeding is that a contested matter involves a contested request for relief in the context of the main bankruptcy proceeding (pursuant to Rule 9014 of the Federal Rules

• f Bankruptcy Procedure), while an adversary proceeding involves the filing of a

complaint, commencing a separate proceeding governed by the “7000” series of the Bankruptcy Rules.

• B. Adversary Proceedings
• 1. Overview of Bankruptcy Rule 7001: Matters that must be resolved in an adversary

proceeding include:

• a. a proceeding to recover money or property, other than a proceeding to compel

the debtor to deliver property to the trustee, or a proceeding under §554(b) or §725 of the Code, Rule 2017, or Rule 6002;

• b. a proceeding to determine the validity, priority, or extent of a lien or other

interest in property, but not a proceeding under Rule 3012 or Rule 4003(d);

• c. a proceeding to obtain approval under §363(h) for the sale of both the interest
• f the estate and of a co-owner in property;
• d. a proceeding to object to or revoke a discharge, other than an objection to

discharge under §§727(a)(8), 1 (a)(9), or 1328(f);

• e. a proceeding to revoke an order of confirmation of a chapter 11, chapter 12, or

chapter 13 plan;

• f. a proceeding to determine the dischargeability of a debt;
• g. a proceeding to obtain an injunction or other equitable relief, except when a

chapter 9, chapter 11, chapter 12, or chapter 13 plan provides for the relief;

• h. a proceeding to subordinate any allowed claim or interest, except when a

chapter 9, chapter 11, chapter 12, or chapter 13 plan provides for subordination; a proceeding to obtain a declaratory judgment relating to any of the foregoing;

• r
• i. a proceeding to determine a claim or cause of action removed under 28 U.S.C.

§1452.

• 2. Bankruptcy Rule 7002 makes the Federal Rules of Civil Procedure applicable

B.R. 7002 states: Whenever a Federal Rule of Civil Procedure applicable to adversary proceedings makes reference to another Federal Rule of Civil Procedure, the reference shall be read as a reference to the Federal Rules of Civil Procedure as modified in this Part VII.

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• 3. Local Rules Concerning Rule 7001:
• a. Rule 1073-1(b) Assignment of Cases- Adversary proceedings and matters arising

in or related to a case shall be assigned to the Judge to whom the case is assigned.

• b. Rule 7003-1 Cover Sheet - At the commencement of each adversary proceeding,

and Adversary Proceeding Cover Sheet in the form prescribed by the Administrative Office of the United States Courts, available from the Clerk, must be completed and filed with each complaint that is not filed electronically.

• c. Rule 9019-2 Alternative Dispute Resolution - Alternative Dispute Resolution is

available in adversary proceedings or contested matters.

• 4. Pleading Issues and Case-Law
• a. Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The U.S. Supreme Court, in

an antitrust conspiracy case, examined the pleading requirements of Rule 8(a) of the Federal Rules of Civil Procedure. The Court held that legal conclusions are insufficient to state a claim, and that a “formulaic recitation” of the elements of a claim do not satisfy Rule 8(a). Rather, the complaint must contain sufficient factual allegations to “nudge” a plaintiff’s claims “across the line from conceivable to plausible.” Id. at 570.

• b. Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009). In Iqbal, the Supreme Court confirmed

that the heightened “plausibility” pleading standard was not confined to just antitrust cases. The Court in Iqbal suggested a two-pronged approach: (1) the court should first set aside allegations that are no more than conclusions, and (2) determine whether the remaining factual allegations plausibly give rise to an entitlement to relief. Id. at 1950.

• c. The plausibility pleading standard has been adopted by the Sixth Circuit. See

Hensley Manufacturing v. ProPride, Inc., 579 F.3d 603, 609 (6th Cir. 2009). It has also been applied to bankruptcy cases. See In re American Camshaft Specialties, Inc., 410 B.R. 765 (Bankr. E.D. Mich. 2009).

• C. Contested Matters
• 1. Overview of Bankruptcy Rule 9014: “In a contested matter not otherwise governed

by these rules, relief shall be requested by motion, and reasonable notice and

• pportunity for hearing shall be afforded the party against whom relief is sought. No

response is required under this rule unless the court directs otherwise.”

• a. Notes of Advisory Committee: “Whenever there is an actual dispute, other than

an adversary proceeding, before the bankruptcy court, the litigation to resolve that dispute is a contested matter.” Fed. R. Bankr. P. 9014 Advisory Committee Note.

• b. What kinds of cases are contested matters? Most bankruptcy court litigation is

conducted through contested matters.

• 1. Dismissal or conversion of a case under Rule 1017(d)
• 2. Objections to confirmation of a plan under Rule 3020(b)(1)
• 3. Relief from automatic stay and use of cash collateral under Rule 4001(a)

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• 4. Avoidance of a lien under §552(f) under Rule 4003(d)
• 5. Assumption or rejection of executory contracts or unexpired leases under

Rule 6006(a).

• D. Turnover Motions and Adversary Proceeding
• 1. Sixth Circuit and Northern District of Ohio case law indicates that the Bankruptcy

rules require that a party seeking a turnover file that request as an adversary proceeding rather than as a motion in another bankruptcy proceeding. See, e.g., Camall Co. v. Steadfast Ins. Co., 16 Fed. Appx. 403, 407 (6th Cir. 2001); In re Armstrong, 2015 Bankr. LEXIS 3121 (Bankr. N,D. Ohio Sep. 9, 2015); In re Mobley, 2012 Bankr. LEXIS (Bankr. N.D. Ohio Dec. 6, 2012); TranSouth Fin. Corp. v. Sharon, 234 B.R. 676, 689 (B.A.P. 6th Cir. 1999) (Stosberg, J., dissenting).

• II. Service of Process
• A. Rule 7004 v. FRCP Rule 4: Rule 7004 differs from Rule 4 in two main ways: how process

is served and who can be served.

• 1. How Is Service Made? In non-bankruptcy civil litigation, Rule 4 requires that the

complaint be served on the defendant by a process server (someone at least 18 years old and not a party to the case). This method is also available in a bankruptcy case, but Bankruptcy Rule 7004 goes a step further and allows service by first class

• mail. Rule 7004(b)(1)-(6) lists the method for using first class mail for different types
• f entities:
• a. Individuals (other than an infant or incompetent person): By mailing a copy of

the summons and complaint to the individual’s dwelling house or usual place of abode or to the place where the individual regularly conducts a business or profession.

• b. Infant or incompetent person: By mailing a copy of the summons and complaint

to the person upon whom process is prescribed to be served by the law of the state in which service is made when an action is brought against such a defendant in the courts of general jurisdiction of that state. The summons and complaint should be addressed to the person required to be served at that person’s dwelling house or usual place of abode or at the place where the person regularly conducts a business or profession.

• c. Domestic or foreign corporation, partnership, or unincorporated association: By

mailing a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant.

• d. The United States: By mailing a copy of the summons and complaint addressed

to the civil process clerk at the office of the United States attorney for the district in which the action is brought and by mailing a copy of the summons and complaint to the Attorney General of the United States at Washington, District of

4 Columbia, and in any action attacking the validity of an order of an officer or an agency of the United States not made a party, by also mailing a copy of the summons and complaint to that officer or agency.

• e. An officer or agency of the United States: By mailing a copy of the summons and

complaint to the United States in accordance with the service rules for serving the United States (section 4) and also to the officer or agency. If the agency is a corporation, follow the service rules for a domestic or foreign corporation, Partnership, or unincorporated association (section 3).

• f. A state or municipal corporation or other governmental organization: By mailing

a copy of the summons and complaint to the person or office upon whom process is prescribed to be served by the law of the state in which service is made when an action is brought against such a defendant in the courts of general jurisdiction of that state, or in the absence of the designation of any such person or office by state law, then to the chief executive officer thereof.

• 2. Who Can Be Served? The second major difference between Rule 4 and Bankruptcy

Rule 7004 concerns matters of the court’s personal jurisdiction over defendants. Unless the case involves a federal question, the federal district court will only have jurisdiction over defendants who have sufficient contacts within the state where the federal court sits. International Shoe Co. v. Washington, 326 U.S. 310 (1945). In contrast, the bankruptcy court’s personal jurisdiction extends to “any defendant with respect to a case under the [Bankruptcy] Code or a civil proceeding arising under the [Bankruptcy] Code, or arising in or related to a case under the [Bankruptcy] Code,” no matter where the defendant is in the United States. Fed. R.

• Bankr. P. 7004(f).
• B. Relevant local rules for service of process: Rule 5005-4(b) Electronic Filing- By registering

for a login and password from the court, participants in electronic case filing waive the right to receive notice by first class mail, including notice pursuant topo Fed. R. Bank. P. 2002 (a), and agree to receive notice electronically. Participants also waive the right to service by personal service or first class mail and agree to electronic service, except with regard to service of process of a summons and complaint in an adversary proceeding under Fed. R. Bankr. P. 9014, and service of a subpoena under Fed. R. Bankr. P. 9016.

• III. Rule 2004 v. Depositions
• A. Overview of Rule 2004
• 1. Who can order an examination? Rule 2004(a) provides that on motion of any party

in interest, the court may order the examination of any entity.

• 2. Scope of Examination: The scope of a Rule 2004 examination is quite broad. Rule

2004 provides a process for examining virtually anybody who might have any knowledge of anything touching on the debtor’s finances, property, schedules, and plan of reorganization or ability to pay debts. Rule 2004(b) provides, “[t]he examination of an entity under this rule or of the debtor under § 343 of the Code may relate only to the acts, conduct, or property or to the liabilities and financial

5 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.”

• 3. Case law regarding scope and timing- any limits?
• a. In re Cont’l Capital Inv. Servs., 2009 Bankr. LEXIS 1450 (Bankr. N.D. Ohio Mar. 6,

2009) citing In re Fearn, 96 B.R. 135, 138 (Bankr. S.D. Ohio 1989) (finding that a Rule 2004 examination “should not be so broad as to be more disruptive and costly to the party sought to be examined than beneficial to the party seeking discovery.”).

• b. A 2004 examination is broader in scope and has fewer protections. Moore v.

Lang (In re Lang), 107 B.R. 130, 131 (Bankr. N.D. Ohio 1989).

• c. A motion to conduct a 2004 examination “may be heard ex parte or it may be

heard on notice.” Fed. R. Bankr. P. 2004 Advisory Committee Note committee note (1983).

• d. In re McFadden, 477 B.R. 686 (Bankr. N. D. Ohio 2012): Fed. R. Bankr. P. 2004(a)

supplements the 11 U.S.C. § 341 meeting of creditors examination by providing for In re Michalski further examination of the debtor by a creditor or other party in interest.

• e. In re Michalski, 449 B.R. 273 (Bankr. N.D. Ohio 2011): While the scope of a Rule

2004 examination is very broad, it is not limitless. The examination should not be so broad as to be more disruptive and costly to the party sought to be examined than beneficial to the party seeking discovery.

• f. In re Santiago, 2011 Bankr. LEXIS 2351 (Bankr. N.D. Ohio Feb. 11, 2001): A Fed. R.
• Bankr. P. 2004 examination may relate 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, and in an individual’s debt adjustment case under chapter 13, may also relate to any other matter relevant to the case or to the formulation of a

• plan. Fed. R. Bankr. P. 2004(b). The purpose of a Rule 2004 examination is to

assist a party in interest in determining the nature and extent of the bankruptcy estate, revealing assets, examining transactions and assessing whether wrongdoing has occurred. Such an examination is a pre-litigation discovery device unique to bankruptcy proceedings which allows for the discovery of evidence and examination of the parties before an adversary proceeding or contested matter has been initiated. There are few limits on the scope of a Rule 2004 exam, which is routinely referred to as a fishing expedition.

• B. Overview of Rule 7030 & 7031
• 1. Depositions are governed by Rules 30 and 31 and are made applicable to adversary

proceedings by Bankruptcy Rules 7030 and 7031, respectively. Similarly, Rules 30 and 31 are made applicable to contested matters by Bankruptcy Rule 9014. Rule 30 governs oral depositions, while Rule 31 governs depositions by written questions. Both rules set forth procedures governing when depositions may be taken and how notice of depositions must be provided. Rule 30 also sets forth the rules of how the

6 examination and cross-examination will proceed at an oral deposition, for example, the duration of the examination, management of documents used during a deposition, and consequences for failure to appear at a deposition.

• 2. Scope – any limits?
• a. FRCP 30(d)(1): Unless otherwise stipulated or ordered by the court, a deposition

is limited to one day of 7 hours. The court must allow additional time consistent with Rule 26(b)(1) and (2) if needed to fairly examine the deponent or if the deponent, another person, or any other circumstance impedes or delays the examination.

• b. Rule 30 states that a “deponent’s attendance may be compelled by subpoena

under Rule 45.” Fed. R. Civ. P. 30(a) (emphasis added). A subpoena is not required to compel a party’s attendance at a deposition, a notice will suffice. PRN Funding LLC v. Cole (In re Cole), 2013 Bankr. LEXIS 4762 (Nov. 8, 2013) citing Monks v. Marlinga, 923 F.2d 423, 426-7 (6th Cir. 1991).

• 3. Rule 30b corporate representative designations
• a. Federal Rule of Civil Procedure 30(b)(6) states that in its notice or subpoena, a

party may name as the deponent a public or private corporation, a partnership, an association, a governmental agency, or other entity and must describe with reasonable particularity the matters for examination. The named organization must then designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf; and it may set out the matters on which each person designated will testify. A subpoena must advise a nonparty organization of its duty to make this designation. The persons designated must testify about information known or reasonably available to the

• rganization.

· Rule 30(b)(6) was meant to curb “bandying” of employees, a practice where the corporation would send a series of employees to be deposed who, in turn, disclaimed knowledge of facts clearly known to the persons in the

• rganization.
• b. Rules To Follow
• 1. NDOH Local Rule 30.1 - Conduct of the Parties during a deposition
• 2. NDOH Local Rule 32.1 - Rules for Videotaping Depositions
• 3. NDOH Local Rule 37.1 - Mechanism to resolve discovery disputes
• c. Civ. R. 30(b)(2) - Producing Documents: If a subpoena duces tecum is to be

served on the deponent, the materials designated for production, as set out in the subpoena, must be listed in the notice or in an attachment. The notice to a party deponent may be accompanied by a request under Rule 34 to produce documents and tangible things at the deposition.

• 1. Also, electronically stored documents
• 2. Strategically, before or after a Civ. R. 34 request for documents

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• d. How to request the right documents and the correct individual
• 1. Documents
• a. Storage method of the documents;
• b. Location of the documents;
• c. Custodian’s name;
• d. Processes by which documents are stored;
• e. Systems used;
• f. Databases used.
• 2. People
• a. Deposing party must designate the areas of inquiry with “reasonable

particularity.” U.S. v. Taylor, 166 F.R.D. 356, 360 (M.D.N.C. 1996)

• b. Corporations cannot present employees who disclaim knowledge of facts

known by other individuals within the entity as the “corporate rep.” SmithKline Beecham Corp. v. Apotex Corp., 2000 WL 116082, at *8 (N.D. Ill, Jan 24, 2000).

• b. Individual requested (by the specific request) must be able to answer the

questions posed for that particular purpose.

• c. Must know the corporate “position” on what something means? The

deponent’s “positions” are not their own, but the positions of the corporation.

• d. Must know the corporate “opinion” of what something means? The

deponent’s “opinions” are not their own, but the opinions of the corporation.

• 3. Corporations are BOUND by the testimony of the corporate rep.
• a. Even if the appointed representative is not “knowledgeable enough” on

the sought after testimony, the corporation has a duty to educate them.

• b. Corporations must make a conscientious good-faith endeavor to

designate a person having knowledge of the matters sought and to prepare the person in order that they can answer fully, completely and unevasively, the questions posed. Mistsui & Co. v. Puerto Rico Water Res Auth., 93 F.R.D. 62, 67 (D.P.R. 1981).

• c. Depending on the level of obfuscation, the testimony given by a non-

responsive corporate representative may be deemed binding on the corporation so as to prohibit it from offering contrary evidence at trial. Rainey v. Am. Forest and Paper Assoc., 26 F.Supp.2d 82, 94-95 (D.D.C. 1998).

• IV. Preservation of Issues on Appeal

A Fed. R. Bankr. P. 8006 and 8010 address the proper presentation of issues and arguments on appeal. Rule 8006 requires that the appellant file with the clerk and serve on the appellee a designation of the items to be included in the record on appeal

8 and a statement of the issues to be presented. Rule 8010(a)(1) requires the appellant’s opening brief contain, inter alia, a statement of the issues presented and an argument containing the contentions of the appellant with respect to the issues presented, and the reasons therefor, with citations to the authorities, statutes and parts

• f the record relied on.
• B. Intelligent Mailing Solutions, Inc. V. Ascomn Hasler Mailing Sys., 2006 U.S. Dist. LEXIS

6488 (Bankr. N.D. Ohio Feb. 21, 2006): As long as an issue in inferable, then Fed. R.

• Bankr. P. 8006 is not intended to bind either party to the appeal as to the issues that are

to be presented. Circumstances useful in determining whether an issue not listed in a Rule 8006 statement is inferable includ: whether the issue was raised in the bankruptcy court (because an appellate court generally will not consider issues not adjudicated below); whether the issue requires one court to make any independent factual findings; and whether the issue presents unfair surprise to the other litigant.

• C. Edmondson v. Gordon (In re Gordon), 2017 Bankr. LEXIS 1371 (B.A.P. 6th Cir. 2017): It is

well-settled that the court will not consider arguments raised for the first time on appeal unless its failure to consider the issues will result in a plain miscarriage of justice.

• V. Procedures for appeal
• A. Overview of Rule 8009:
• 1. The appellant must file with the bankruptcy clerk and serve on the appellee a

designation of the items to be included in the record on appeal and a statement of the issues to be presented.

• 2. The appellant must file and serve the designation and statement within 14 days

after: the appellant’s notice of appeal as of right becomes effective under Rule 8002;

• r an order granting leave to appeal is entered. A designation and statement served

prematurely must be treated as served on the first day on which filing is timely.

• 3. Within 14 days after being served, the appellee may file with the bankruptcy clerk

and serve on the appellant a designation of additional items to be included in the

• record. An appellee who files a cross-appeal must file and serve a designation of

additional items to be included in the record and a statement of the issues to be presented on the cross-appeal.

• 4. Within 14 days after service of the cross-appellant’s designation and statement, a

cross appellee may file with the bankruptcy clerk and serve on the cross-appellant a designation of additional items to be included in the record.

• 5. The record on appeal must include the following:
• a. the docket entries kept by the bankruptcy clerk;
• b. items designated by the parties;
• c. the notice of appeal;
• d. the judgment, order, or decree being appealed;
• e. any order granting leave to appeal;
• f. any certification required for a direct appeal to the court of appeals;
• g. any opinion, findings of fact, and conclusions of law relating to the issues on

9 appeal, including transcripts of all oral rulings;

• h. any transcript ordered under subdivision (b);
• i. any statement required by subdivision (c); and
• j. any additional items from the record that the court where the appeal is

pending orders.

• VI. Fifth Amendment Issues
• A. 5th Amendment: “No person shall be held to answer for a capital, or otherwise infamous

crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy

• f life or limb; nor shall be compelled in any criminal case to be a witness against

himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

• B. Assertion of 5th Amendment Privilege
• 1. Case authority unequivocally supports the debtor’s right to invoke the Fifth

Amendment privilege without jeopardizing her right to a discharge. In re Potter, 88 B.R. 843 (Bankr. N.D. Ohio, 1988).

• 2. Before the Debtor may remain silent, he must validly assert his Fifth Amendment
• rights. “A valid assertion of [this] privilege exists where a witness has reasonable

cause to apprehend a real danger of incrimination.” Donovan v. Fitzsimmons (In re Morganroth), 718 F.2d 161, 167 (6th Cir. 1983) (citing Hoffman v. United States, 341 U.S. 479(1951)). Accordingly, the Debtor must face “a ‘real danger,’ and not a mere imaginary, remote or speculative possibility of prosecution.” Morganroth, 718 F.2d at 167 (citing United States v. Apfelbaum, 445 U.S. 115 (1980)).

• 3. Blanket assertions of the privilege are not sufficient, nor can a witness invoke the

privilege before being asked questions. Morganroth, 718 F.2d at 167

• 4. “The privilege must be asserted by a witness with respect to particular questions,

and in each instance, the court must determine the propriety of the refusal to testify.” Morganroth, 718 F.2d at 167. ]

• 5. “[S]ufficient evidence is presented . . . if [the] court can, by the use of reasonable

inference or judicial imagination, conceive a sound basis for a reasonable fear of prosecution.” Morganroth, 718 F.2d at 169.

• 6. The debtor may not refuse on the basis that the books, papers and records contain

potentially incriminating evidence. 3 Collier on Bankruptcy ¶ 344.03 [4][a] (16th ed. 2011) citing Butcher v. Bailey, 753 F.2d 465, 468–69 (6th Cir. 1985) (reversing order

• f bankruptcy court authorizing debtor to withhold personal papers from trustee on

basis of their incriminating content).

• 7. Preservation of issues on appeal