New York Bankruptcy Judge Sean Lean recently denied a Rule 2004 request because the movant sought documents for use in an unrelated litigation. In re Cambridge Analytica LLC, No. 18-11500, 2019 Bankr. LEXIS 1824 (Bankr. S.D.N.Y. Jun. 14, 2019). Judge Lane said discovery sought through Rule 2004 should be used in the bankruptcy case and not in other disputes.[1]

The debtor Cambridge Analytica LLC (the “Debtor”) was a political consultant that worked for the 2016 Trump election campaign. In April 2018, a putative class action was filed in Delaware federal court against the Debtor and Facebook concerning allegations that the Debtor had used personal information of Facebook users. That same month, a derivative action was filed in Delaware Chancery Court by other plaintiffs against certain Facebook officers and directors.

A plaintiff in the derivative action (the “Movant”) wanted documents from the Debtor to use in the derivative action. To obtain standing in the bankruptcy case to bring a Rule 2004 motion, the Movant bought a claim from a creditor of the Debtor that had been filed in the Debtor’s bankruptcy case. The claim had a face value of $650. As a holder of a claim, the Movant then sought an order in the bankruptcy case directing the production of certain documents from the Debtor, citing Rule 2004.

Before the Movant filed her motion, the plaintiffs in the class action had filed a Rule 2004 request in the Debtor’s bankruptcy case that Judge Lane had granted.[2] Judge Lane’s ruling denying the Movant’s request highlighted key differences between the two Rule 2004 motions.

First, the court noted that the Movant was not a creditor when the bankruptcy case was filed. The Movant became a creditor only a week before she filed her motion by purchasing a claim from a creditor. And, significantly, she sought documents not for use in the bankruptcy case but in the derivative action in Delaware. In contrast, the plaintiffs in the class action had sought documents through Rule 2004 to use in the bankruptcy case.

Second, Judge Lane observed that the Movant had not actively participated in the bankruptcy case. All she had done was to buy a claim and file the Rule 2004 motion. In contrast, the class action plaintiffs had been actively involved in critical aspects of the bankruptcy case. They had attended multiple hearings, consulted with the bankruptcy trustee, and took positions on matters central to the case. Their Rule 2004 request also concerned matters that were relevant to their status as creditors in the case.

Finally, Judge Lane expressed concern that granting the Movant’s Rule 2004 motion would set a bad precedent. Parties in other cases would be incentivized “to purchase nominal claims in bankruptcy cases solely to pursue their outside litigation agendas.”[3] This would be particularly problematic in cases like this where the bankruptcy estate had limited funds and could easily be rendered administratively insolvent if forced to comply with Rule 2004 requests.