Federal Rule of Bankruptcy Procedure 2004(a) states that "[o]n motion of any party in interest, the court may order the examination of any entity."  Courts construing Rule 2004(a) have found its scope "unfettered and broad."  In re Washington Mutual, Inc., 408 B.R. 45, 49 (Bankr. D. Del. 2009), citing In re Bennett Funding Group, Inc., 203 B.R. 24, 28 (Bankr. N. D. N.Y. 1996).  Federal Rule of Bankruptcy Procedure 2004(b) establishes some of the parameters of what is commonly referred to as a "Rule 2004 Examination":

The examination ... may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate.  [Additionally, in a] case under chapter 11 ... the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formation of a plan.

In its broadest sense, 2004 examinations are referred to as a "fishing expedition".  Bennett Funding Group, 203 B.R. at 28.  Rule 2004 examinations are not intended to be abusive, but instead provide opportunities for "discovering assets, examining transactions, and determining whether wrongdoing has occurred."  Washington Mutual, 408 B.R. at 50, citing In re Enron Corp., 281 B.R. 836, 840 (Bankr. S.D. N.Y. 2002). 

The scope of Rule 2004 examinations, however, has its limits.  For example, examinations cannot be used to abuse or harass a party, nor can the examinations "stray into matters which are not relevant to the basic inquiry."  Washington Mutual, 408 B.R. at 50, citing In re Table Talk, Inc., 51 B.R. 143, 145 (Bankr. D. Mass. 1985)(additional citations omitted). 

The decision in Washington Mutual arose from the Debtors' motion for a Rule 2004 examination of the entity that had purchased Washington Mutual's assets after they were sold by the FDIC. The issue before the court was whether a 2004 examination could be limited due to a pending adversary proceeding or litigation in another forum.  Washington Mutual, 408 B.R. at 50. The court begin its analysis by recognizing the "pending proceeding" rule. Under this rule, "once an adversary proceeding or contested matter has been commenced, discovery is made pursuant to Federal Rule of Bankruptcy Procedure 7026, et seq., rather then by a [Rule] 2004 examination.  Id., citing Bennett Funding Group, 203 B.R. at 28.  Courts also restrict the use of Rule 2004 exams where the party requesting the examination could benefit their pending litigation outside the bankruptcy court which happens to be against the Rule 2004 examinee.  Washington Mutual, 408 B.R. at 50, citing In re Enron Corp., 281 B.R. at 842.

The reasons for restricting 2004 examinations when other litigation is pending are straightforward.  First, in adversary proceedings and contested matters, the parties are governed by the general rules of discovery.  Second, Rule 2004 examinations do not provide the same safeguards as those afforded under Federal Rule of Bankruptcy Procedure 7026.  In a 2004 exam, for example, a witness does not have a general right to be represented by counsel during a deposition and there are limitations on the right to object to immaterial or improper questions.  Washington Mutual, 408 B.R. at 50, citing In re Dinubilo, 177 B.R. 932, 940 (Bankr. E.D. Cal. 1993). 

When a court is faced with a motion for 2004 examination and there is a pending adversary proceeding, the court must balance the abuses sought to be avoided by the "pending proceeding" rule against the trustee's fiduciary duty to maximize value for the estate.  Under this approach, the appropriate test is whether the Rule 2004 examination seeks to discover evidence related or unrelated to the pending adversary proceeding.  Washington Mutual, 408 B.R. at 51.  Applying this test to the facts before it, the Washington Mutual court found that the "pending proceeding" rule did not prohibit the debtors' use of a Rule 2004 examination against the asset purchaser.  The party that purchased the assets, and who opposed the 2004 examination, was not a party to the "pending proceeding," though it might intervene at a later time.  According to the court,  there was no basis for concern that the debtors were attempting to circumvent the Federal Rules of Civil Procedure for an action in which the asset purchaser was not a party.  Washington Mutual, 408 B.R. at 53.