Summary:
The Debtor was involved in a lawsuit Gennaro Vitale, Gary Annino, and GG Mirage, LLC (a limited liability company owned by Annino) relating to business and financial issues which had arisen between those parties (the “GG Mirage lawsuit”). That lawsuit was settled, subject to a confidentiality provision. Subsequently, Designer Glass sought production of the settlement agreement, first in state court and, following the Debtor’s bankruptcy filing, obtained a copy through an ex parte motion pursuant to Rule 2004, without serving such motion on Vitale or Annino. The Debtor produced the Settlement Agreement and Vitale & Annino sought reconsideration of that order.
Rule 2004(a) provides that the court may order the examination of any entity, its plain meaning grants to bankruptcy courts complete discretion in determining whether a Rule 2004 examination is appropriate. One recognized limitation on the broad scope of Rule 2004 is the “pending proceeding rule,” pursuant to which courts may preclude discovery under Rule 2004 based on the “existence of other pending litigation in which such discovery could be obtained.” In re International Fibercom, Inc., 283 B.R. 290, 292 (Bankr. D. Ariz. 2002). Here the bankruptcy court questioned whether the primary purpose in the Rule 2004 examination/production was “to further the administration of the bankruptcy case or to aid [the Movant’s] pending state court litigation.” The bankruptcy court held that coupled with the lack of full service, “Designer Glass took advantage of the ex parte aspect of the local rule, which is premised on the ability to have orders entered under that practice readily reconsidered”, where in actuality once produced, the Confidential Settlement Order would be difficult to retract. Accordingly, the bankruptcy court rescinded the order requiring production and directed that Designer Glass “is prohibited from using the contents of the Settlement Agreement in any manner until and unless a court of competent jurisdiction orders otherwise.”
For a copy of the opinion, please see:
Ramadan- Rule 2004 Production of Confidential Settlement Agreements.pdf
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