Efficient Document Review in Bankruptcy Litigation Part I

Document review and production are similar in bankruptcy proceedings as compared to document review and production in general litigation cases. But there are important differences and, because of these differences, litigants and their attorneys (and bankruptcy trustees) will approach document requests with an eye towards ensuring that the document review and production is efficient. For the reasons detailed below, in bankruptcy proceedings, “efficiency” is about controlling costs and taking seriously the need for proportionality in evaluating what can be obtained potentially through the discovery, balanced against what efforts/expense must be expended to produce the discovery.

Why is cost-efficiency so important? 

The importance of cost-efficiency in bankruptcy document production can be traced to many factors. But three should be highlighted. Probably the most important reason involves the in rem nature of bankruptcy litigation. When a bankruptcy petition is filed, all of the debtor’s non-exempt assets are legally transferred to the bankruptcy court and placed in the Bankruptcy Estate. Those assets are managed by the trustee for the benefit of the creditors. This means that, because business records are assets of the debtor, legally, those business records – the documents that are being sought for production – belong to the trustee even though the documents may be in the possession and control of the debtor. As such, in a manner of speaking, when discovery is directed at the debtor, that discovery is directed at the bankruptcy court and the trustee. Because of this, the trustee will often have top-level involvement in the production process, particularly if production requests are targeting the debtor and are extensive and wide-ranging. 

Second, discovery – of any size – has associated costs and, when those costs are borne by the debtor, discovery requests have the effect of diminishing the pool of assets that are available to be distributed to creditors. Since the court and the trustee have legal obligations to maximize the pool of assets that can be distributed to creditors, the court and the trustee will strongly disfavor discovery tactics and methods that can be viewed as wastage of the Estate’s assets. Thus, bankruptcy judges strongly discourage “discovery fights,” rigorously enforce the discovery consultation requirements of the Rules of Civil Procedure, and demand cost-efficient document review and production, particularly when the debtor is the discovery target. 

The final reason that deserves focus involves how different types of bankruptcies can impact document review and production. In oversimplified terms, bankruptcies are either liquidations or reorganizations. While privilege and work product questions are never unimportant, they can be less important in liquidations as opposed to reorganizations. By contrast, the confidentiality of commercially valuable proprietary information may be more important in liquidations, since such information can be sold to enlarge the pool of liquid assets that can, eventually, be distributed to the creditors. For additional information on document review services, contact Baer Reed. We provide legal support solutions to law firms and in-house legal teams around the world. To learn more, contact us online or call us today at 888-433-1990.