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Alextronic Discovery
An Electronic Discovery Blog covering News, Articles
and Thoughts for the Legal and Corporate Community Author: Alexander H. Lubarsky, LL.M., Esq. - alubarsky@enterusa.com - Tel. (415) 533-4166 OR 800-375-4222 THIS BLAWG IS NOT AFFILIATED WITH THE WEB SITES WWW.DISCOVERYRESOURCES.ORG OR WWW.DISCOVERYRESOURCES.COM


Sunday, April 11, 2004

Somewhere Between Chapters 7 and 13... It's HammerTime!  

Somewhere Between Chapters 7 and 13... It's HammerTime!

As I was perusing the new initial disclosure requirements for bankruptcy filings (Federal Bankruptcy Courts) I was at first impressed by the inordinate thought, logical flow and reasonable standards that were interwoven into the Act (Fed. R. Bankr. P. 7026) which modifies the framework of FRCP 26.

Why on earth would the bankruptcy courts of all places have put so much thought into the electronic aspect of disclosure and discovery? Aren't these courts essentially little more than middle-ground turf for Sears and MC Hammer to go at it over the dischargeablility of an HDTV flat screen ?

Counsel for Hammer: "Creditor, concerning the TV ... well, to state it simply, ... "U Can't Touch This."

Counsel for Sears: "You can count on us." We'll get it back for our client.

Amidst the fireworks, the Bailiff quickly swaps his black uniform for an oversized white one, puts on the Z-Ray Shades and a few gold chains and Hammertime is on...

The Judge screams "Order in the court, order in the court!" One more outburst like that, and I will trail this matter to the end of the calendar and go straight to Vanilla Ice vs. FUBU.

So where's the ED?

The Bankruptcy courts first mandate that an initial discovery conference in which electronic and conventional evidence is considered. The court mandates a meeting in which informal discovery, ADR and narrow down the scope of their respective claims. Routine stuff so far...

Then the rules kick into ED overdrive. The rules set for that FRCP rule 26(a) - initial disclosures including disclosure of electronic evidence are made in writing and delivered to the other party or his or her counsel within 14 calendar days after the Discovery Conference.

This translates to the debtor and creditor sifting through debts, assets and accounts receivables to determine what items should be included within the filing and what may be considered exempted or nondischargeable.

As financial transactions are largely electronic these days (wire transfers, internet account balance transfers, on-line retail commerce and the like) the data that falls into the purview this informal discovery conference is less and less paper and more and more virtual.

Take, for instance, the case of Chapter 7 debtor who obtains a discharge on his credit card but one of the creditors (a bank) claims that prior to the discharge a large cash advance was wired from the card to the debtor's account. The bank may wish to challenge the dischargeablility of this debt on the grounds of fraud or deceptive/reckless conduct.

The law, however, does not maintain that such a wire transfer prior to filing for dissolution is per se fraudulent or otherwise unlawful. If the debtor at the time of the transfer had not been contemplating a bankruptcy filing and/or was using the funds for essential items and/or had a real expectation to repay the debt, then the debt would in all likelihood remain dischargeable.

Well, how doe we "discover" the wire transfer? How do we "discover" other similar transfers made by the debtor to show a pattern or practice or habit which may or may not assist in the proving or disproving of fraudulent intent? How do we uncover any communications made by the debtor which may reveal intent at the time?

The answer my friends, is spinning in the hard drive... the answer is spinning in the hard drive.

Think about it. If Dan Debtor had filed for bankruptcy every six years and each time transferred a large advance sum from his credit card and then used that credit to purchase a scuba vacation in the Bahamas a few weeks prior to the filing of his Chapter 7 petition... then the creditor may easily have a case for nondischargeability. However, if Dan Debtor has a history of small, sporadic cash advances made during desperate times and used for the purposes of paying his rent, clothing his kids and commuting to work... then perhaps the transfer was made in good faith and Dan is entitled to a fresh start.

Let's say, however, that the electronic advance is unique and does not show up in Dan's e-credit histories... (yes all parties discussed retention policies in detail during the initial disclosure and discovery conference). What to do then? How can we possibly show Dan's intent?

How about the discovery of Dan's e-mail file (.pst if he is an Outlook user, .nsf file if he is a Lotus Notes user and other file types if he uses cc.mail or Eudora or some other e-mail application)? Perhaps the discovery of that file would turn up a message from Dan to his old frat brother Paul Partier. "Hey Paul-O. Hope you're going easy on the beer bongs these days... did I tell you the latest scam I pulled to cash out some cash for brewskies....?" Of course, a search of Dan's e-mail may also turn up a message with a distinct tone: "Hi Paul. I hope you have outgrown that silly beer bong thing of yours. I have surely matured. I have felt very helpless lately, as I have been laid off of work and even had to go as far as taking out a cash advance on my credit card to pay for necessities. I,of course, will do all I can to repay that debt... ." This type of electronic evidence (in conjunction with other electronic audit trails) will eventually extract the truth as to the debtors intent and will turn the case.

The Bankruptcy Code goes on to require a written "discovery plan" to come out of these discovery conferences. This is not unlike your senior group project thesis in Greek History. The parties are required to meet together and do some homework. Specifically, they must "develop a written discovery plan signed by all parties... which reflects the parties' views and proposals concerning the following factors:"

1. What changes should be made to the initial disclosure requirements

2. Proposed timing litmitations, if any, of additional needed discovery

3. The subject of any court orders that may be appropriate.

Then... the parties appear at trial with the e-discovery issues identified, flushed out, massaged and synthesized. Now that's what I call true Hammertime.

posted by Alexander | 9:39 PM

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