Matter of Wilcher

• Decision Date: 13 December 1985
• Docket Number: Bankruptcy No. 82 B 8657.
• Citation: 56 BR 428
• Parties: In the Matter of Paul D. WILCHER, Sr., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

56 B.R. 428 (1985)

In the Matter of Paul D. WILCHER, Sr., Debtor.

Bankruptcy No. 82 B 8657.

United States Bankruptcy Court, N.D. Illinois, E.D.

December 13, 1985.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

MEMORANDUM DECISION AND ORDER QUASHING SUBPOENA

ROBERT D. MARTIN, Bankruptcy Judge.

This matter concerns the motion of Seymour H. Persky to quash the subpoena duces tecum served upon him by Lawrence Cooper, the court appointed examiner in the Paul D. Wilcher, Sr., personal chapter 11 bankruptcy case. Wilcher filed a chapter 11 petition on July 2, 1982. For several years prior to that time he had been the sole general partner of an Illinois limited partnership called the Sherman-Noyes and Prairie Apartments Real Estate Investment Partnership. That partnership had previously filed its own chapter 11 petition on April 2, 1980. After filing its petition in bankruptcy the partnership, through its general partner Wilcher, continued to do business as a debtor in possession. Ongoing losses mounted, however, and on August 4, 1981, Bankruptcy Judge Frederick Hertz ordered the appointment of a trustee.

During February of 1982 the trustee liquidated all of the real properties which constituted the partnership's assets. These properties consisted of the Sherman Avenue apartment complex, the Orrington Hotel and parking garage, and the Fountain Square office building, all located in Evanston, Illinois. The apartment complex was the first property sold. This sale was ordered by the bankruptcy court on or about February 8, 1982. The property was sold to Seymour H. Persky and his wife, the movants in this motion. The other properties were all sold to different parties not presently involved in the motion to quash the subpoena.

Certain irregularities allegedly surround the sale of the apartment complex. Specifically Wilcher has alleged that the apartments were sold for an inadequate consideration and without proper notice. He also alleges that an appraiser was appointed by the bankruptcy court ex parte without proper notice and hearing. More generally, Wilcher has alleged the existence of a massive conspiracy involving almost everybody who has had anything to do with the business of the partnership, including the partnership's chapter 11 trustee, Mr. Leroy, and Judge Hertz who was the presiding bankruptcy judge at that time. Although Mr. Wilcher has filed literally thousands of pages of documents in various courts and other government agencies in which the existence of a conspiracy is repeatedly alleged, he has until this time produced no sound evidence which would tend to prove the existence of a criminal conspiracy.

On May 26, 1983, Lawrence Cooper was appointed as examiner in the Wilcher personal cases. Mr. Cooper's appointment was felt to be necessary because, despite the vagueness of Wilcher's allegations, there is a plausible suggestion of irregularities surrounding the sale of the Sherman Avenue apartment complex as noted above. The basis upon which the examiner now seeks discovery of Persky is that if substantial wrongdoing were found to have surrounded the sale of the Sherman Avenue apartment buildings in 1982 the sale might be reversed or money damages might become available in the partnership chapter 11 case. This in turn might have an impact upon the administration of the Wilcher personal cases due to Wilcher's status as general partner of the partnership.

In his memorandum in support of his motion Persky asserts a number of grounds upon which this court should quash the subpoena duces tecum. Persky asserts that the scope of the requested examination violates Bankruptcy Rule 2004, and further that the examiner has not shown good cause for the taking of discovery from Persky. Most importantly, Persky argues that the order of Judge Moran confirming the sale of the Sherman Avenue apartments and affirming Judge Hertz's order authorizing that sale has conclusively disposed of all issues of fact and law surrounding the sale of the apartment complex. Thus, Persky asserts that any discovery relating to those issues is improper. For reasons discussed below the subpoena must be quashed.

I.

The scope of the examination sought exceeds the examiner's authority under sections 1104 and 1106 of the Bankruptcy Code and Bankruptcy Rule 2004. An examiner in a chapter 11 case is appointed pursuant to 11 U.S.C. § 1104 and performs certain of the trustee's duties, primarily investigative in nature, as specified in 11 U.S.C. § 1106. Section 1104 provides:

(a) At any time after the commencement of the case but before confirmation of a plan, on request of a party in interest, and after notice and a hearing, the court shall order the appointment of a trustee —

(1) for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case, or similar cause, but not including the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor; or

(2) if such appointment is in the interest of creditors, any equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor.

(b) If the court does not order the appointment of a trustee under this section, then at any time before the confirmation of a plan, on request of a party in interest, and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if —

(1) such appointment is in the interests of creditors, any equity security holders, and other interests of the estate; or

(2) the debtor\'s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.

(c) If the court orders the appointment of a trustee or examiner, if a trustee or an examiner dies or resigns during the case or is removed under section 324 of this title, or if a trustee fails to qualify under section 322 of this title, then the court shall appoint one disinterested person to serve as trustee or examiner, as the case may be, in the case.

11 U.S.C. § 1104 (emphasis added). Section 1106 provides in relevant part:

(a) A trustee shall —

. . . .

(3) except to the extent that the court orders otherwise, investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor\'s business and the desirability of the continuance of such business, and any other matter relevant to the case or to the formulation of a plan;

(4) as soon as practicable —

(A) file a statement of any investigation conducted under paragraph (3) of this subsection, including any fact ascertained pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor, or to a cause of action available to the estate; and (B) transmit a copy or a summary of any such statement to any creditors\' committee or equity security holders\' committee, to any indenture trustee, and to such other entity as the court designates;

. . . .

(b) An examiner appointed under section 1104(c) of this title shall perform the duties specified in paragraphs (3) and (4) of subsection (a) of this section, and, except to the extent that the court orders otherwise, any other duties of the trustee that the court orders the debtor in possession not to perform.

11 U.S.C. § 1106(a)(3), (4), (b). The scope of the permissible examination is further defined by Bankruptcy Rule 2004 which provides in relevant part:

EXAMINATION

(a) Examination on Motion. On motion of any party in interest, the court may order the examination of any person. (b) Scope of Examination. The examination of any person 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 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. In an individual\'s debt adjustment case under chapter 13 or a reorganization case under chapter 11 of the Code, other than for the reorganization of a railroad, the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.

(c) Compelling Attendance and Production of Documentary Evidence. The attendance of any person for examination and the production of documentary evidence may be compelled in the manner provided in Rule 9016 for the attendance of witnesses at a hearing or trial.

Bankruptcy Rule 2004 (emphasis added).

The general rule is that the scope of a Rule 2004 examination is very broad and great latitude of inquiry is ordinarily permitted. In Re Mittco, Inc., 44 B.R. 35, 36 (Bankr.E.D.Wis.1984); In Re GHR Energy Corp., 35 B.R. 534 (Bankr.D.Mass. 1983). The scope of examination allowed under Bankruptcy Rule 2004 is larger than that allowed under the Federal Rules of Civil Procedure and can legitimately be in the nature of a "fishing expedition." See In Re Vantage Petroleum Corp., 34 B.R. 650, 651 (Bankr.E.D.N.Y.1983) and cases cited therein. Although the primary purpose of a Rule 2004 examination is to permit the trustee to quickly ascertain the extent and location of the estate's assets, see In Re Good Hope Refineries, Inc., 9 B.R. 421, 423 (Bankr.D.Mass.1981) (discussing purpose of...