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I’m jumping a little out of sequence on my review (see Rule 1001 and Rule 1002) of the Federal Rules of Bankruptcy Procedure because I was working with Rule 2004 quite a bit today.  Rule 2004 is a powerful one.  It’s full text is really too long to reproduce here, but the business end of Rule 2004 (subsection (a)) says, “On motion of any party in interest, the court may order the examination of any entity.”  Subsection (b)  purports to delineate Rule 2004′s scope, but it really doesn’t because there frankly isn’t much scope.  Rule 2004 examinations are exceptionally broad, and they’re far more broad that any discovery tool under the general Federal Rules of Civil Procedure.

While Norton’s seems to underplay its significance by referring to its use primarily by trustees, an oft-cited case Massachusetts case really spells out its power. In re GHR Energy Corp., 33 B.R. 451 (Bankr. D. Mass. 1983).  The Court in GHR Energy said:

It is clear that the scope of a Rule 2004 examination is unfettered and broad. “In general, a large latitude of inquiry should be allowed in the examination of persons connected with the bankrupt in business dealing, or otherwise, for the purpose of discovering assets and unearthing frauds, upon any reasonable surmise that they have assets of the debtor . . . The examination . . . is of necessity to a considerable extent a fishing expedition.” In re Foerst, 93 F. 190, 191 (S.D.N.Y 1899).  It may be “exploratory and groping.” Sachs v. Hadden, 173 F.2d 929, 931 (2d Cir. 1949).  “[T]he breadth of the language employed in the Rule so all emcompassing as semantically to include and encourage harassment on every human subject. ” In re Georgetown of Kettering, 17 B.R. 73, 75, 8 B.C.C. 934, 935 (Bankr. S.D. Ohio 1981).

33 B.R. 453-54. That’s some breathless, vivid, and non-politically correct language therein… “unfettered and broad,” “fishing expedition,”  “exploratory and groping,” and “harassment on every human subject.”

I’m continuing my review of the Federal Rules of Bankruptcy Procedure, so the next one up is Rule 1002.  It appears uncontroversial because it quite plainly says:

(a) Petition. A petition commencing a case under the Code shall be filed with the clerk.

(b) Transmission to the United States Trustee. The clerk shall forthwith transmit to the United States trustee a copy of the petition filed pursuant to subdivision (a) of this rule.

It seems uncontroversial because it says, “Hey, if you file a case, you should give it to the clerk.”  Big deal.

But according to a copy of Norton Bankruptcy Rules I borrowed from the office tonight, the prior version of Rule 1002 was far more detailed.  Because this incarnation of Rule 1002 is to brief, it gives the local bankruptcy courts a great amount of control over the how counsel files its cases when they promulgate local procedural rules.

Of course, Norton’s concedes that “as a general proposition” this is no big deal because usually local counsel files cases in their local bankruptcy courts.  But, Norton’s also broods that when the rule writers gave this much control to they local courts, they ran the risk of (1) undermining national uniformity and (2) they likely created problems for out of state counsel on big cases.

See?  Lawyers can find controversy even in a simple rule like Federal Rule of Bankruptcy Procedure 1002.

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I took a peek around the internet to see what bloggers were saying about today’s Supreme Court decision in Milavetz, Gallop, & Milavetz, P.A. v. United States, no. 08-1119.

Bob Lawless at the popular Credit Slips blog seems satisfied that the decision came out the way he expected, and chastised early reports for their inaccuracies. By contrast, M. Jonathon Hayes at the BankruptcyProf Blog was “shocked” given his read of the oral argument.

On the other hand, Scott Riddle at the Georgia Bankruptcy Blog was surprised that lawyers could be called anything but debt relief agencies under BAPCPA. Stephen Sather, an Austin bankruptcy, lawyer yawned along with Riddle on the designation, but made the point that BAPCPA survived its first constitutional salvo.

Steve Jakubowski at Bankruptcy Litigation Blog took the opportunity to remind us that today would have been Holmes’ 169th birthday. While Washington State bankruptcy lawyer Jay Jump lamented the decision as a lose-lose proposition for lawyers and their clients alike and rings the free speech warning siren in the process (maybe rightly) at the National Bankruptcy Forum.

As for the McLeod Law Offices, they are probably too busy to read the opinion, at least until the weekend. After all, if you haven’t heard, bankruptcy firms debt relief agencies are a little busy these days–just a little.

I was reading Ninth Circuit BAP case Dunn v. Chase Home Finance, LLC (In re Dunn), no. 09-1176 (9th Cir. B.A.P. Feb. 4, 2010) when I came across footnote two.  It says:

Dunn has provided us with little in the way of excerpts of record to work with.  For instance, she did not provide us with copies of her bankruptcy schedules and statements, nor do we have the transcripes . . . nonetheless [we] have independently reviewed [the electronic docket] . . . we have done our best to reconstruct what what transpired . . . [the appellant] bears the consequences of failing to meet [her] burden.

I’m pretty sure it was an oversight on the lawyer’s part, and I’m pretty sure the omissions alone would not prejudice the case too much, but this is the stuff that makes a geeky law student’s mouse finger twitch.

There are so many little twists and turns in procedure, so many chances to make a mistake.   I hope I never get my own footnote two from a panel of appellate judges. Or any judge.  Or equity partner, senior partner, junior partner, senior associate, associate, paralegal, or even copier repair guy.  I hate making mistakes.

Somewhat interestingly (again, to a geeky law student), the Bankruptcy Appellate Panel Judges, Markell, Montali, and Pappas, cited to Ehrenberg v. Cal. State Fullerton (In re Beachport Enter.), 396 F.3d 1083 (9th Cir. 2005) for the seeming proposition that they could reconstruct the transcripts.  I wonder what that case says…

I’m skimming one of the long-awaited Supreme Court bankruptcy cases, Milavetz, Gallop, & Milavetz, P.A. v. United States, no. 08-1119, a Justice Soyomayor opinion, for lunch at a Starbucks at Park Central Mall in Phoenix.

By now, far more intelligent pundits than I have surely commented on it. Hopeful they are not confused by one of it’s most important holdings like I am.

In ruling that BAPCPA prohibitions do not violate free speech, the Court argued that section 526(a) “prohibits a debt relief agency only from advising an assisted person to incur more debt when the impelling reason for the advice is the anticipation of bankruptcy.”

I’m still confused because I was hoping it would more clearly address the situation where a client says, “I’m thinking about filing for bankruptcy, should I pay my Visa bill considering they will charge a late fee and increased interest rates?”

Doesn’t that incur more debt?