Law on Rice

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.

I’m lucky enough to be getting really great experience working for a bankruptcy lawyer these days. Part of what I really enjoy doing is the nuts and bolts work of preparing all the forms that comprise the bankruptcy petition.

But as I fill out the bankruptcy forms, I have two nagging questions in the back of my head: (1) what’s the source of authority that allows the courts to require compliance with the forms and (2) how do I know—legally—whether I’ve responded sufficiently to any particular item required by the form?

Perhaps not surprisingly, I did not see anything in Title 11 specifically referring to the forms. The Federal Rules of Bankruptcy Procedure do, of course, refer to them as the “Official Forms.” Indeed Rule 1007(b)(1) requires that a debtor file a list of schedules “as prescribed by the appropriate Official Forms, if any” when filing the bankruptcy petition. More to the point, however, is Rule 9009 (“Forms”):

Except as otherwise provided in Rule 3016(d), the Official Forms prescribed by the Judicial Conference of the United States shall be observed and used with alterations as may be appropriate. Forms may be combined and their contents rearranged to permit economies in their use. The Director of the Administrative Office of the United States Courts may issue additional forms for use under the Code. The forms shall be construed to be consistent with these rules and the Code.

So there’s the authority. In addition, I found some of the answer to my question about compliance in the Advisory Committee Notes to Rule 9009. For example, the ACNs say:

The use of the Official Forms has generally been held subject to a “rule of substantial compliance” and some of these rules, for example Rule 1002, specifically state that the filed document need only “conform substantially” to the Official Form.

Standards like “substantial compliance” make my head swim, but at least it’s something to chew on for a while. Maybe the instructions or committee notes will have more guidance for any given form. Of note, it looks like there is no way to really effectively keep track of the Judicial Conference for changes to the forms—other than to read the reports from the proceedings. As I write this, the last report was over a year ago in March 2008.