ERNEST M. ROBLES, Bankruptcy Judge.
Debtors move for reconsideration (the "Motion for Reconsideration")
Michael Bonert and Vivien Bonert (the "Debtors") filed a voluntary Chapter 11 petition on September 12, 2019 (the "Petition Date"). Prior to the Petition Date, the Debtors operated a pie manufacturing company known as Bonert's Incorporated (the "Bakery"). In 2016, the Bakery ceased conducting business after its lender caused the Bakery's assets to be sold through a federal receivership. Proceeds of the receivership sale were used to pay secured creditors, but were not sufficient to pay unsecured trade creditors, some of whom obtained unopposed judgments against the Bakery.
On August 13 and 14, 2019, trade creditors Capitol Distribution Company, LLC, Coastal Carriers, LLC, Packaging Corporation of America, Seneca Foods Corporation, and Stratas Foods LLC (collectively, the "Creditors") filed collection actions (the "Collection Actions") against the Bakery, the Debtors, and LLCs owned by the Debtors that had leased properties to the Bakery. The Collection Actions allege, inter alia, that the Debtors operated the LLCs and the Bakery as a single enterprise for the purpose of defeating the rights of creditors; that the Debtors are the alter ego of the Bakery; and that consequently the Debtors are liable for trade debt incurred by the LLCs and the Bakery. Two of the Collection Actions were filed in the United States District Court for the Central District of California (the "District Court") and two of the Collection Actions were filed in the Los Angeles Superior Court (the "State Court").
Debtors sought bankruptcy protection for the purpose of having all alter-ego claims arising in connection with the Debtors' operation of the LLCs and the Bakery adjudicated before the Bankruptcy Court. Pursuant to this objective, on September 13 and 16, 2019, the Debtors removed all four of the Collection Actions to the Bankruptcy Court.
On October 17, 2019, the Court approved stipulations remanding two of the Collection Actions to the District Court. Both stipulations were without prejudice to any party's right (1) to move for referral of the action back to the Bankruptcy Court or (2) to move for an injunction against the prosecution of the action. The Collection Actions that originated in the State Court remain pending before this Court. Motions for orders remanding those Collection Actions to the State Court are scheduled to be heard on December 11, 2019.
On September 16, 2019, the Debtors moved to employ Fredman Lieberman Pearl LLP ("FLP") as their general bankruptcy counsel (the "Employment Application").
On November 1, 2019, Creditors moved to conduct a Rule 2004 examination of the Debtors (the "Rule 2004 Motion").
On November 5, 2019, at 3:53 p.m.—approximately three hours subsequent to entry of the Rule 2004 Order—Debtors filed an opposition to the Rule 2004 Motion (the "Opposition").
On November 7, 2019, Debtors filed a motion for reconsideration of the Rule 2004 Order (the "Motion for Reconsideration"),
Pursuant to LBR 2004-1(f), discovery disputes arising in connection with an order requiring a Rule 2004 examination are normally resolved by way of a motion for a protective order. LBR 2004-1(f) requires that a motion for a protective order be "filed and served not less than 14 days before the date of the examination, and set for hearing not less than 2 days before the scheduled examination. . . ." LBR 2004-1(f) further provides that the Court may order a postponement of a Rule 2004 examination so that the motion for a protective order may be heard on regular notice.
The Court finds it appropriate to treat the Motion for Reconsideration as a motion for a protective order (the "Motion for Protective Order"). The primary arguments advanced by the Debtors are that (1) the discovery obligations imposed by the Rule 2004 Order are unreasonably burdensome, and (2) that Creditors are attempting to use Rule 2004 to benefit prosecution of their Collection Actions, thereby circumventing the stricter safeguards applicable to discovery conducted in adversary proceedings. These are the types of arguments that are typically advanced in support of a motion for a protective order.
Pursuant to LBR 2004-1(f), the Court will order a postponement of the Rule 2004 examination so that the Motion for Protective Order may be heard on regular notice. The Rule 2004 Order requires the Debtors to produce documents on November 29, 2019 and to submit to examinations on December 12, 2019. No urgent circumstances require that the complex issues raised by the Motion for Protective Order be adjudicated on shortened notice. To the extent that Creditors assert that the Rule 2004 examinations are necessary to enable them to determine whether to file a dischargeability action, the Debtors have stated that they are willing to stipulate to a 60-day extension of the deadline to file a dischargeability complaint.
The hearing on FLP's Employment Application is set for November 19, 2019. Further adjudication of the issues raised by the Motion for Protective Order prior to the determination of whether FLP will be allowed to serve as the Debtors' general bankruptcy counsel would prejudice the Debtors. The following deadlines shall apply with respect to the Motion for Protective Order:
Pending adjudication of the Motion for Protective Order, the Court will vacate the Rule 2004 Order. Once the Motion for Protective Order has been adjudicated, the Court will enter an order setting new dates regarding the Rule 2004 examinations, if appropriate.
The Court will enter an order consistent with this Memorandum of Decision.