Rhodes v. Litigation Trust of the Rhodes Companies (In re Rhodes Companies)

475 B.R. 733, 82 Fed. R. Serv. 3d 468, 2012 WL 1512509, 2012 U.S. Dist. LEXIS 59918
CourtDistrict Court, D. Nevada
DecidedApril 30, 2012
DocketNo. 2:11-CV-01705-PMP-GWF
StatusPublished
Cited by17 cases

This text of 475 B.R. 733 (Rhodes v. Litigation Trust of the Rhodes Companies (In re Rhodes Companies)) is published on Counsel Stack Legal Research, covering District Court, D. Nevada primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rhodes v. Litigation Trust of the Rhodes Companies (In re Rhodes Companies), 475 B.R. 733, 82 Fed. R. Serv. 3d 468, 2012 WL 1512509, 2012 U.S. Dist. LEXIS 59918 (D. Nev. 2012).

Opinion

OPINION

PHILIP M. PRO, District Judge.

Presently before the Court is Appellant James M. Rhodes’ appeal of the United States Bankruptcy Court’s Order Denying Appellant’s Motion to Quash Rule 2004 Examination and Corresponding Subpoenas.

I. BACKGROUND

Appellant James M. Rhodes (“Rhodes”) is founder and president of The Rhodes Companies, LLC and its affiliated companies. (Case No. 09-BK-14814-LBR, Bankr.Doc. # 95.) On March 31 and April 1, 2009, The Rhodes Companies LLC and its affiliated companies (collectively “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Nevada. (Appellant’s App. (“App.”) at 2; Appellee’s App. (“Suppl. App.”) at 265.) On March 12, 2010, the [736]*736Bankruptcy Court entered an order confirming the Third Amended Modified Plan of Reorganization. (App. at 2.) The Debtors’ Reorganization Plan created the Litigation Trust (the “Trust”) and tasked the Trust with investigating claims belonging to the Debtors, including claims against Rhodes and several related entities (the “Rhodes Entities”). (Suppl. App. at 284-85.) The Trust suspected numerous wrongful transfers of Debtors’ funds to the Rhodes Entities or to third parties for the benefit of Rhodes and/or the Rhodes Entities. (App. at 70-71.) The Trust believed that the transfers were made to (1) pay Rhodes’ personal taxes, (2) pay Rhodes’ personal credit card bills, (3) pay legal and professional services that did not benefit the Debtors, (4) obtain real property for the Rhodes Entities, and (5) remove encumbrances on real property for the Rhodes Entities. (Id. at 86.)

On August 29 and 30, 2011, the Trust filed four motions seeking orders granting examinations of representatives of several third parties pursuant to Federal Rule of Bankruptcy Procedure 2004. (Id. at 102-07,110-15, 118-23,126-31.) On August 30 and 31, 2011, the Bankruptcy Court granted the motions. (Id. at 108-09, 116-17, 124-25, 132-33.) The subpoenas were directed at third parties that the Trust believed received funds from the Debtors, namely law firms, financial institutions, title companies, and other professionals. (Id. at 86.) Although some of the subpoenaed parties expressed concerns regarding the subpoenas, the Trust resolved such concerns with the subpoenaed parties through the meet and confer process. (Id. at 86-87.)

On September 14, 2011, Rhodes filed a Motion to Quash Orders of Rule 2004 Examination and Corresponding Subpoenas and/or for Protective Orders (“Motion to Quash”). (Id. at 7-65.) Rhodes requested that the Bankruptcy Court quash all the subpoenas under Federal Rule of Civil Procedure (“FRCP”) 45(c)(3)(A)(iii)-(iv), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 9016, because the subpoenas required disclosure of privileged information and subjected the subpoenaed parties to an undue burden. (Id. at 19-22.) Alternatively, Rhodes requested that the Bankruptcy Court limit the subpoenas by issuing protective orders under FRCP 26(c), which allows the court to issue an order protecting a party or person from undue burden. (Id. at 7-8.) Rhodes argued that “[t]he scope of the Litigation Trust’s discovery goes well beyond the permissible bounds of Rule 2004 and calls for vast amounts of information — largely irrelevant, privileged, confidential, and personally identifiable information — for a time period well outside the scope of reasonableness.” (Id. at 8.)

On September 23, 2011, the Trust filed a Response to the Motion to Quash. (Id. at 68-90.) At a status conference held on September 27, 2011, the Bankruptcy Court asked counsel for Rhodes, “Under the discovery rules, you’re supposed to confer in good faith before you bring motions to quash. Did you do that?” (Id. at 222.) Counsel responded, “Yes, we did. We did it on a call.” (Id.) After the status conference, Rhodes filed a Reply in support of the Motion to Quash on September 30, 2011. (Id. at 91-98.) At the hearing on the Motion to Quash on October 5, 2011, the Bankruptcy Court asked counsel for Rhodes, “So what was the context of your conversation before the motion was filed?” (Id. at 229.) Counsel responded, “It was a very brief conversation that we objected and were going to file the motion to quash.” (Id.) The Court replied, “Rule 7037 says, ‘Discovery motions will not be considered unless a statement of moving counsel is attached certifying that after [737]*737consultation or effort to do so the parties have been unable to resolve the matter without Court action.’... [W]here’s the certificate about your consultation?” (Id. at 229-30.) Counsel explained, “That we failed to include.” (Id. at 230.)

The Bankruptcy Court denied the motion because (1) the subpoenas were an appropriate method of investigating potential fraudulent transfer claims, (2) Rhodes lacked standing to challenge the subpoenas as unduly burdensome because he was not a party to the subpoenas, and (3) Rhodes did not confer with the Trust as required by the federal and local discovery rules and thus did not make a good faith attempt to resolve the issue before filing the Motion to Quash. (Id. at 245^46.) The Court entered its Order Denying the Motion to Quash on October 12, 2011. (Id. at 99-100.)

On October 18, 2011, Rhodes filed a timely Notice of Appeal (Doc. # 1) of the Bankruptcy Court’s Order. Rhodes filed his Opening Brief (Doc. # 10) on December 2, 2011. The Trust filed its Answering Brief (Doc. # 12) on December 19, 2011. Rhodes filed his Reply Brief (Doc. # 14) on January 5, 2011.

II. DISCUSSION

A. Standard of Review

The Court reviews a bankruptcy court’s denial of a motion to quash filed pursuant to FRCP 45(c)(3) and a motion for protective orders filed pursuant to FRCP 26(c) for abuse of discretion. Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, 813-14 (9th Cir.2003) (motion to quash); Travers v. Shalala, 20 F.3d 993, 999 (9th Cir.1994) (motion for protective order). The Bankruptcy Court’s conclusions of law are reviewed de novo and its findings of fact are reviewed for clear error. In re Rains, 428 F.3d 893, 900 (9th Cir.2005); see also Fed. R. Bankr.P. 8013. Whether a party has standing is a question of law the Court reviews de novo. San Luis & Delta-Mendota Water Auth. v. United States, 672 F.3d 676, 699 (9th Cir.2012). The Court may affirm the Bankruptcy Court’s decision “on any ground fairly supported by the record.” In re Warren,

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475 B.R. 733, 82 Fed. R. Serv. 3d 468, 2012 WL 1512509, 2012 U.S. Dist. LEXIS 59918, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rhodes-v-litigation-trust-of-the-rhodes-companies-in-re-rhodes-companies-nvd-2012.