In re Enron Corp.

• Decision Date: 15 August 2002
• Docket Number: No. 01-16034 AJG.,01-16034 AJG.
• Parties: In re ENRON CORP., et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

281 B.R. 836

In re ENRON CORP., et al., Debtors.

No. 01-16034 AJG.

United States Bankruptcy Court, S.D. New York.

August 15, 2002.

MEMORANDUM DECISION AND ORDER CONCERNING MOTIONS FILED BY THE REGENTS OF THE UNIVERSITY OF CALIFORNIA TO OBTAIN COPIES OF DOCUMENTS PRODUCED BY VARIOUS PARTIES THAT ARE CONTAINED ON THE BANKRUPTCY RULE 2004 WEBSITE

ARTHUR J. GONZALEZ, Bankruptcy Judge.

Before the Court are three separate motions filed by the Regents of the University of California (the "Regents"), as Lead Plaintiff in the Newby Class Action (the "Newby Action"), requesting that this Court enter an order requiring the Official Committee of Unsecured Creditors ("Committee") to provide the Regents with access to certain documents produced by Arthur Andersen LLP ("Andersen"), Vinson & Elkins LLP ("V & E"), and McKinsey & Company ("McKinsey") (collectively, the "Objectants"). The Objectants have requested that the Regents' motions be denied. Pursuant to an order of this Court dated March 15, 2002 (the "March 15th Order"), the documents that the Regents have requested are located on a website that was created to, among other things, store and provide access to materials received by the Committee in connection with the Committee's investigations of Enron Corp. and its affiliated debtors and debtors in possession (collectively, "Debtors") under Rule 2004 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rule"). As contemplated under the March 15th Order, the Court has treated the Regents' motions as a request for materials from the Objectants pursuant to Bankruptcy Rule 2004. This Court heard oral argument on July 11, 2002.

I. Background To The Instant Controversy

A. The Regents and the Newby Action

The Regents was named as the Lead Plaintiff in the securities class actions pending in the United States District Court for the Southern District of Texas (Houston Division), known as the Newby Action (Harmon, J.). The Regents filed a consolidated complaint (the "Complaint") on behalf of persons who purchased Debtors' notes and stock, the Class Claimants, naming Andersen and V & E, among others, as defendants.

Except as expressly permitted by order of Judge Harmon, pursuant to the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. § 78u-4(b)(3)(B), all discovery is stayed in the Newby Action pending a judicial determination on motions to dismiss that have been filed in that case.¹ McKinsey is not a party to the Newby Action, however no party disputes that the automatic discovery stay of the PSLRA applies to McKinsey.²

On February 27, 2002, Judge Harmon entered a scheduling order governing, among other things, discovery in the Newby Action. In relevant part, Judge Harmon's scheduling order authorizes certain ERISA plaintiffs to obtain discovery materials that are not otherwise stayed in the Newby Action by the PSLRA. To this Court's knowledge, Judge Harmon has not authorized the Regents to obtain the discovery materials that the Regents have requested in the instant motion.³

B. The Committee's Motions For Discovery Under Bankruptcy Rule 2004

On January 23, 2002, the Committee moved this Court pursuant to Bankruptcy Rule 2004 for an order allowing it to seek discovery from Andersen. On February 6th, the Committee served Andersen with a subpoena requesting material concerning the relationship between Andersen and Debtors. Subsequent thereto, the Committee and Andersen entered into a stipulation governing the production and use of certain confidential Andersen materials which was so ordered by the Court on May 17, 2002.

On February 7, 2002 and pursuant to Bankruptcy Rule 2004, the Committee moved this Court for an order allowing it to seek discovery from, among others, V & E and McKinsey. The Committee's motion was geared towards its investigation of Debtors's off-balance sheet assets and liabilities. On February 28, 2002, the Committee served V & E with a subpoena seeking a wide range of documents concerning Debtors' special purpose entities, related party transactions, financial statements, relationship with Andersen, and retention and use of V & E as counsel. Subsequent thereto, the Committee, Debtors, and V & E entered into a stipulation governing the production and use of confidential V & E materials. Beginning March 21, 2002, V & E has been producing, and continues to produce, documents responsive to the Committee's subpoena.

On February 28, 2002, the Committee served McKinsey with a subpoena requesting the production of a wide range of documents concerning the work performed by McKinsey in relation to or on behalf of Debtors. On April 2, 2002, McKinsey began producing documents responsive to the subpoena subject to the March 15th Order, and subject to a confidentiality agreement entered into between Debtors and the Committee.

C. The Committee's Bankruptcy Rule 2004 Website

On March 15, 2002, this Court entered an order entitled, Order Regarding Access By Third Parties To Bankruptcy Rule 2004 Material Obtained By The Official Committee of Unsecured Creditors (previously defined as the "March 15th Order").⁴ One of the purposes of the March 15th Order was to provide a mechanism for parties in interest with a legitimate need regarding the administration of the bankruptcy estate, to request access to discovery materials obtained by the Committee from investigating Debtors' affairs. These discovery materials can include documents, deposition transcripts, deposition exhibits, and deposition videotapes ("Rule 2004 Material"). To this end, the Committee was authorized in its reasonable discretion to choose a mechanism for providing access to the Rule 2004 Material by, among other methods, developing an electronically accessible document and transcript website. The Committee chose a website as the mechanism for delivering access to the Rule 2004 Material ("Website").

It is the Committee's responsibility to provide notice to parties in interest of the fact that the Committee has received Rule 2004 Material from the various entities that the Committee has sought and continues to seek discovery from under Bankruptcy Rule 2004 ("Producing Party"). In order for parties in interest in this bankruptcy case ("Requesting Party") to access the Website, a Requesting Party must submit a request on a pre-printed form ("Request") outlining which materials are sought. The March 15th Order requires that the Request include the Requesting Party's representation and agreement that the Rule 2004 Material will be used for purposes consistent with Rule 2004(b).⁵ Specifically, a Request

shall include a representation and agreement by the Requesting Party that the Rule 2004 Material is sought and shall be used by the Requesting Party in connection with the investigation of claims that relate to the acts, conduct, or property or to the liabilities and financial condition of the Debtors, or to any matter which may affect the administration of the Debtors' estate.

March 15th Order at ¶ 4.

The Request is noticed to the Committee, Debtors and Producing Party. Unless a Producing Party objects within ten business days, the Committee has an affirmative obligation to provide access to the materials requested. If a Producing Party lodges a timely objection to a Request for 2004 Material, then the Committee is relieved of its obligation to provide access to the materials requested under the March 15th Order. Thereafter, unless the parties are able to work out any of their differences, the parties may seek judicial intervention.

Here, the Regents filed a Request for certain Rule 2004 Materials on the Website concerning the Objectants. Andersen, V & E, and McKinsey all filed objections. These objections precipitated the Regents' instant motions as contemplated by the March 15th Order.⁶

The question before the Court is whether Rule 2004 is an appropriate discovery device where the Objectants contend that the purpose of the Regents' Request is to bypass the PSLRA stay in the Newby Action. The March 15th Order requires that the materials sought shall be for purposes consistent with Bankruptcy Rule 2004, therefore, in deciding this issue, the Court will apply the standards for the use of that rule.

II. Discussion

Bankruptcy Rule 2004(a) of the Federal Rules of Bankruptcy Procedure states, "[o]n motion of any party in interest, the court may order the examination of any entity." The scope of an examination permitted by Rule 2004 may relate only 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 bankruptcy estate. Fed. R. Bankr.P. 2004(b). As the permissive language of the rule suggests, the Court has the discretion to grant a request for a 2004 examination, In re Bd. of Dirs. of Hopewell Int'l Ins., Ltd., 258 B.R. 580, 587 (Bankr.S.D.N.Y.2001); In re French, 145 B.R. 991, 993 (Bankr.D.S.D.1992), and in the proper context the Court may authorize the examination of third parties that possess knowledge of the debtor's acts, conduct, liabilities or financial condition which relate to the administration of the bankruptcy estate. In re Bennett Funding Group, Inc., 203 B.R. 24, 28 (Bankr.N.D.N.Y.1996).

As a general proposition, Rule 2004 examinations are appropriate for revealing the nature and extent of the bankruptcy estate, see Bennett Funding, 203 B.R. at 28, and for "discovering assets, examining transactions, and determining whether wrongdoing has occurred." In re Strecker, 251 B.R. 878, 882 (Bankr.D.Colo.2000) (citing In re Duratech Indus., Inc., 241 B.R. 283, 289 (E.D.N.Y.1999)). In this regard, courts have recognized that Rule 2004 examinations are broad and unfettered and in the nature of fishing expeditions. E.g., In re GHR Energy Corp., 33 B.R. 451, 453 (Bankr.D.Mass.1983). However, "the availability of Rule 2004 as a discovery tool is not unlimited." Intercontinental Enters., Inc. v. Keller (In re Blinder,...