Ries v. Ardinger (In re Adkins Supply, Inc.)
555 B.R. 579, 2016 Bankr. LEXIS 2709 (2016)
Rule of Law:
In federal court, a party asserting discovery objections must state them with specificity for each request, and general objections are typically waived. When federal and state law claims are present, federal privilege law applies. Additionally, documents must be produced either as they are kept in the usual course of business or organized and labeled to correspond to the requests, and simply providing access to unorganized documents in a storage facility does not satisfy this requirement.
Facts:
- Kent Ries (Trustee) is the Trustee of the Adkins Supply, Inc. bankruptcy estate.
- The Trustee's complaint included causes of action for usury, fraud, and fraudulent transfers against Mary Ardinger and the Estate of Horace T. Ardinger, Jr.
- The causes of action arose from a series of transactions from 2007 to 2010 between Robert Adkins (acting on behalf of Adkins Supply, Inc. and R.L. Adkins Corp.) and Horace T. Ardinger, Jr.
- These transactions involved hundreds of wire transfers of funds by Horace Ardinger to Adkins Supply, with Adkins Supply subsequently 'reimbursing' Ardinger the wired amounts plus an additional 2% to 3% return within a few days.
- The aggregate amount of these transfers over the time frame at issue, according to the Trustee, exceeded $44 million, and the total alleged paid returns exceeded $4.2 million.
- Horace Ardinger died in late December 2012.
Procedural Posture:
- Adkins Supply, Inc. filed for protection under Chapter 11 of the Bankruptcy Code.
- The bankruptcy case was converted to Chapter 7.
- Kent Ries was appointed as Trustee for the Adkins Supply, Inc. bankruptcy estate.
- Horace Ardinger filed a proof of claim of $4,440,000 in the Adkins Supply bankruptcy case.
- The Trustee (plaintiff) filed an adversary proceeding against Mary Ardinger and the Estate of Horace T. Ardinger, Jr. (defendants).
- Trustee served Interrogatories and Requests for Production of Documents on the defendants.
- Defendants served their answers to the discovery requests, which included numerous general objections and incomplete responses.
- Trustee filed a 'Motion to Compel Defendants to Answer Discovery' with the United States Bankruptcy Court.
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Issue:
1. Do defendants satisfy their discovery obligations under the Federal Rules of Civil Procedure by submitting general, non-specific objections to interrogatories and requests for production, asserting broad privileges without specific justification, or offering to provide unorganized documents in a storage facility? 2. In a bankruptcy adversary proceeding involving both federal and state law claims, does federal or state law govern claims of privilege during discovery?
Opinions:
Majority - Robert L. Jones
No, defendants do not satisfy their discovery obligations by submitting general, non-specific objections or by offering to provide unorganized documents in a storage facility. Yes, in a bankruptcy adversary proceeding involving both federal and state law claims, federal privilege law governs claims of privilege during discovery. The court first addressed the issue of privilege law, holding that federal privilege law applies when both federal (e.g., § 548 fraudulent transfer, objection to claim) and state (e.g., state fraudulent transfer, usury, fraud) causes of action are present and arise from the same alleged facts. The court noted that requiring different privilege laws for the same evidence would be impractical and cited precedent from the Northern District of Texas favoring federal privilege law in such mixed cases. Regarding the discovery objections, the court found that defendants' 'General Objections' failed the specificity requirement of Federal Rules of Civil Procedure 33(b)(4) and 34(b)(2)(B). The Fifth Circuit requires specific support for each individual objection, and broad, non-specific objections are typically waived. Defendants' general objection, encompassing work product, attorney-client, spousal, trade secret, confidential, tax return, and time frame, lacked any demonstration of how or why these privileges applied to specific requests. The court also overruled objections based on work product and attorney-client privilege, stating that these privileges protect confidential communications or documents prepared in anticipation of litigation, not the underlying facts (such as the identity of persons involved in preparing answers to interrogatories). The court also rejected relevance objections, emphasizing the broad scope of discovery where information is relevant if there is 'any possibility' it relates to a claim or defense. Objections based on 'unduly burdensome' or 'time frame' were overruled because defendants failed to provide a specific, detailed showing or evidentiary proof of the burden, which is required by Rule 26(b)(1) and Fifth Circuit precedent. Similarly, trade secret, confidential information, and tax return objections were overruled, as there is no absolute privilege for these, and defendants failed to demonstrate 'good cause' or potential harm. While acknowledging a general federal policy against indiscriminate disclosure of tax returns, the court decided to limit their disclosure to the Trustee and his attorneys/experts rather than grant a blanket protective order. On the form of document production, the court rejected defendants' offer to allow Trustee to sort through boxes in a storage facility. Citing Rule 34(b)(2)(E), which provides two options (produce 'as they are kept in the usual course of business' or 'organize and label them to correspond to the categories in the request'), the court explained that simply allowing access to unorganized documents in storage does not qualify as producing them 'in the usual course of business' if the business is no longer functioning or if they are not maintained in an organized manner. Since defendants failed to provide evidence that the storage method met the 'usual course of business' standard, the court mandated that defendants must organize and label the documents according to the requests.
Analysis:
This case reinforces critical aspects of federal discovery practice, particularly the need for specificity in objections and proper document production. By rejecting boilerplate objections and 'Easter egg hunt' production, the court signals a low tolerance for discovery gamesmanship and ensures the efficient flow of information. The ruling on the application of federal privilege law in mixed federal and state claims provides clarity for practitioners in bankruptcy adversary proceedings and may influence similar decisions in other federal contexts involving supplemental jurisdiction. It emphasizes the judiciary's commitment to full disclosure within the adversarial system, while also providing a nuanced approach to sensitive information like tax returns.
