MEMORANDUM OPINION

Hon. David T. Thuma, United States Bankruptcy Judge.

This matter came before the Court on Victor Kearney's (the "Debtor") Amended Motion for 2004 Examination of Alvarado Realty Company (the "Rule 2004 Motion"). For the reasons set forth below, the Court will grant the 2004 Motion in part.

I. BACKGROUND

The Court finds the following facts, for the limited purpose of ruling on the Rule 2004 Motion:1

Benjamin and Pat Abruzzo owned and developed the Sandia Peak Ski Area and the Sandia Peak Tramway, both owned by Alvarado Realty Company ("ARCO"). The Abruzzos died in a plane crash in 1985, and were survived by their four children, Louis, Benny, Richard, and Mary Pat. The children took over the management of ARCO after their parent' death.

Mary Pat Abruzzo married the Debtor in 1988, when she was 22 years old. She executed a last will and testament on July 8, 1988.

Mary Pat Abruzzo died in 1997, at the age of 31. At the time of her death, she owned about 18.5% of ARCO's stock. Under the terms of her will, the stock was bequeathed to two testamentary trusts (together, the "Trusts" or the "MPK Trusts").

During his lifetime, Debtor is the income beneficiary of the MPK Trusts. Upon his death, the corpus of the trusts is to be distributed to Louis, Benny, and Richard Abruzzo or their children.2

Mary Pat Abruzzo's will appointed the Debtor, Louis, and Benny Abruzzo as co-trustees of the MPK Trusts.

Income from the ARCO stock held by the MPK Trusts is substantial. Between 1998 and 2018, the Trusts paid the Debtor a total of about $16,000,000, or about $800,000 per year.

Despite this substantial annuity, relations between the Debtor and Louis and Benny Abruzzo soured. In 2014, the Debtor sued the Abruzzo brothers in New Mexico state court, cause no. D-202-CV-2013-07676 (the "State Court Action"). In his amended complaint, filed October 9, 2014, the Debtor alleged, inter alia:

The presiding judge assigned to the State Court Action is Hon. Alan Malott.

The Debtor sought discovery from ARCO in the State Court Action. In connection with the discovery, on November 13, 2014, Judge Malott entered a Stipulated Amended Confidentiality and Protective Order (the "Confidentiality Order") covering, inter alia, ARCO's trade secrets and private or proprietary information.3

Pursuant to the Debtor's discovery requests, and subject to the Confidentiality Order, ARCO produced the following documents to Debtor:

(the "Produced ARCO Documents").

In violation of the Confidentiality Order, the Debtor disclosed confidential ARCO information to a Sierra Constellation Partners, a Mr. Kocon, and Mr. Kevin Yearout. These people, in turn, gave the confidential information to at least 28 other people.

On March 27, 2015, ARCO filed a motion for sanctions in the State Court Action, seeking monetary and other relief for Debtor's violation of the Confidentiality Order. The relief sought included an order that Debtor would not be given any more of ARCO's confidential information. Judge Malott has not ruled on the motion.

Judge Malott presided over a trial on the merits in June and July, 2015. On July 6, 2015, Judge Malott made the following findings of fact in open court:

On September 8, 2015, Judge Malott entered an order memorializing his oral ruling.

On December 22, 2015, Judge Malott entered an order dealing with the payment of the attorney fees incurred by the Abruzzos in the State Court Action. Judge Malott ruled that the Abruzzos were entitled to recover $510,000 in fees, $35,700 in gross receipts tax, and $120,215.69 in costs. Judge Malott ordered the Debtor to pay 75% of these amounts, and the MPK Trusts to pay 25%. The order contains the following finding:

On April 7, 2017, Judge Malott entered monetary sanctions against the Debtor. In so doing, he found:

Judge Malott entered extensive findings of fact and conclusions of Law on July 7, 2017. Among his findings are:

Debtor filed this chapter 11 case on September 1, 2017. He filed his first motion for Rule 2004 examination of ARCO on October 27, 2017, asking for 24 categories of documents. The stated purposes of the request were to obtain information about:

Without waiting for a ruling on the motion, the Debtor subpoenaed the requested documents from ARCO. ARCO filed a motion for protective order and to quash the subpoena. Later, ARCO objected to the rule 2004 motion.

The matter was pending on February 25, 2018, when Debtor filed an amended motion for Rule 2004 examination of ARCO. The amended motion asked for 40 categories of documents and included 25 additional topics for oral examination. The stated reasons for the requested documents and information are:

Debtor has retained special counsel, Reid Collins & Tsai, LLP, to evaluate and possibly pursue claims against ARCO and its shareholders, directors, and officers.

On May 29, 2018, the Debtor filed an adversary proceeding against the Abruzzos (as trustees) to recover alleged preferential and improper post-petition transfers. The proceeding is pending.

On July 16, 2018, ARCO filed their Objections to Amended Motion for Rule 2004 Examination, doc. 327 (the "Objection"). Attached is an affidavit of John Chavez, an ARCO vice president. Chavez estimated that finding and producing the requested documents would involve about 1,000 man-hours, cost $114,000.00 (apart from attorney fees), and take at least six months.

On September 7, 2018, Debtor filed a summary of terms of a potential $3,300,000 loan from Owl Creek Asset Management, L.P., the proceeds of which would be used to fund a plan of reorganization. One of the funding conditions is "Borrower's professionals receipt of information requested by 2004 Motion."

II. DISCUSSION

A. Rule 2004.

1. Purpose of Rule 2004 Exam. The primary purpose of an examination under Rule 2004 is to ascertain the extent and location of the estate's assets. In re Roman Catholic Church of Diocese of Gallup, 513 B.R. 761, 764 (Bankr. D.N.M. 2014), citing In re Hammond, 140 B.R. 197, 201 (S.D. Ohio 1992). Causes of action are part of an estate's assets. 11 U.S.C.A. § 541(a)(1) (the estate's property includes "all legal or equitable interests of the debtor in property as of the commencement of the case."). The examiner must establish good cause for taking a Rule 2004 examination. Diocese of Gallup, 513 B.R. at 764. See also In re Drexel Burnham Lambert Group, Inc., 123 B.R. 702, 712 (Bankr. S.D.N.Y. 1991).

2. Scope of Rule 2004 Exam. The scope of a Rule 2004 examination can be broad. See In re Handy Andy Home Improvement Centers, Inc., 199 B.R. 376, 378 (Bankr. N.D. Ill. 1996) ("The scope of inquiry under Bankruptcy Rule 2004 is very broad. Great latitude of inquiry is ordinarily permitted. Where there is a showing that the purpose of the examination is to enable a party to probe into matters which may lead to the discovery of assets by examining not only the debtor, but also other witnesses, such inquiry is allowed"); Hammond, 140 B.R. at 201 ("The scope of a Rule 2004 examination is broad. Indeed, some have compared it to a `fishing expedition.'"), citing In re GHR Energy Corp., 33 B.R. 451, 453 (Bankr. D. Mass. 1983); In re French, 145 B.R. 991, 992 (Bankr. D.S.D. 1992) ("Rule 2004 is designed to be a quick `fishing expedition' into general matters and issues regarding the administration of the bankruptcy case ....").

There are limits, however. An examination about matters unrelated to the debtor's affairs or having effect on the administration of his estate is improper. In re Wilcher, 56 B.R. 428, 433 (Bankr. N.D. Ill. 1985); In re Johns-Manville Corp., 42 B.R. 362, 364 (S.D.N.Y. 1984). Rule 2004 examinations "cannot stray into matters which are not relevant to the basic inquiry." In re Mittco, Inc., 44 B.R. 35, 36 (Bankr. E.D. Wis. 1984). A proposed examination may be denied if the purpose is to abuse or harass the target. Hammond, 140 B.R. at 201, citing Mittco, 44 B.R. at 36.

"It is clear that Rule 2004 may not be used as a device to launch into a wholesale investigation of a non-debtor's private business affairs." Wilcher, 56 B.R. at 434; see also In re Mastro, 585 B.R. 587, 597 (9th Cir. BAP 2018) (quoting Wilcher); In re Yellowstone Mountain Club, LLC, 2009 WL 982233 (Bankr. D. Mont. 2009) (same); In re Mezvinsky, 2000 WL 33950697 (Bankr. E.D. Pa. 2000) (same); In re Gay, 2016 WL 1612942, at *2 (Bankr. W.D. Okla. 2016) (same); In re Continental Forge Co., Inc., 73 B.R. 1005 (Bankr. W.D. Pa. 1987) (same); In re Countrywide Home Loans, Inc., 384 B.R. 373 (Bankr. W.D. Pa. 2008) (same).

3. Rule 2004 as a Pre-litigation Device. Rule 2004 can be used as a "pre-litigation device to determine whether there are grounds to bring an action to determine a debtor's right to discharge a particular debt." In re Corso, 328 B.R. 375, 383 (E.D.N.Y 2005); In re Bennett Funding Grp., Inc., 203 B.R. 24, 28 (Bankr. N.D.N.Y. 1996); In re Brooke Corp., 2013 WL 3948866, at *2 (Bankr. D. Kan. 2013); In re Recoton Corp., 307 B.R. 751, 756 (Bankr. S.D.N.Y. 2004) ("The Rule 2004 discovery sought by the Committee is thus prima facie consistent with the Rule's ... purposes of allowing the Committee to obtain information necessary to determine whether claims beneficial to the estates exist and whether to pursue such claims.").

Because a Rule 2004 examination can be used as a pre-litigation device, the trustee is not required to show he would likely prevail in a suit before obtaining the discovery. See In re Symington, 209 B.R. 678, 684 (Bankr. D. Md. 1997) (as Rule 2004 examinations are taken pre-litigation, they need not be tied to specific factual allegations, and are subject to fewer objections on grounds of relevance).

4. The Court Has Discretion to Tailor Rule 2004 Discovery. Rule 2004 gives the Court discretion to limit examination as justice requires. Rule 2004(a) provides that "On motion of any party in interest, the court may order the examination of any entity." (emphasis added). Subsection (b) provides in pertinent part:

Courts have used this permissive, conditional language to restrict discovery that appears unduly intrusive or burdensome. See, e.g., In re Drexel Burnham Lambert Grp., Inc., 123 B.R. 702, 711 (Bankr. S.D.N.Y. 1991) (although Rule 2004 examination can be compared to a fishing expedition, "the net, in the discretion of the Court, can be carefully stitched to limit its catch"). Courts may "limit, condition or even forbid the use of Rule 2004" where it is used to "abuse or harass[]...." Martin v. Schaap Moving Sys., Inc., 152 F.3d 919, at *3 (2d Cir. 1998) (unpublished), quoting In re Mittco, Inc., 44 B.R. 35, 36 (Bankr. E.D. Wis. 1984). See generally In re Georgetown of Kettering, 17 B.R. 73, 75 (Bankr. S.D. Ohio 1981) (referring to the predecessors of Rule 2004, the court stated: "Obviously, the breadth of the language employed in the Rules is so all encompassing as semantically to include and encourage harassment on every human subject. Nevertheless, abuse of propriety and the judicial process certainly was never contemplated.").

B. Matters Considered by the Court.

In reviewing the Debtor's Rule 2004 Motion, the Court considered the following:

1. Burdensomeness of Production. If the target of Rule 2004 discovery believes the request is unduly burdensome, it has the burden of showing that the burden is in fact undue. See, e.g., Jobin v. Resolution Trust Corp., 156 B.R. 834, 838 (D. Colo. 1993) ("the Bank has not indicated that its records would be too voluminous to search or that any other specific problem complicates its disclosure."); In re Vantage Petroleum Corp., 34 B.R. 650, 652 (Bankr. E.D.N.Y. 1983) (motion to quash denied where, among other factors, movants have not shown that such production would be oppressive or burdensome).

ARCO argues that the burden of producing the requested documents would be extremely high. In support of its position, ARCO submitted the affidavit of John Chavez, a Vice President. Mr. Chavez estimated the total cost of production would be about $114,000, and that it would take about 1000 man-hours. Debtor made no attempt to refute these estimates. ARCO has therefore met its burden of showing the burden of production would be undue. Further, a review of the 40 categories of requested documents and 25 topics for deposition inquiry convinces the Court that the request is extremely broad and unduly burdensome.

2. Are the Potential Claims Estate Assets? The obvious purpose of the Rule 2004 Motion is to bolster the claims Debtor wishes to bring against ARCO and its officers, directors, and shareholders. By his own admission, however, Debtor does not own the alleged claims.

a. Direct Claims. Debtor argues that the MPK Trusts, as owners of ARCO stock, may have direct claims against ARCO or other stockholders for minority oppression. See, e.g., Walta v. Gallegos Law Firm, 131 N.M. 544, 40 P.3d 449 (Ct. App. 2002). By admission, these claims would not be owned by the bankruptcy estate, but by the MPK Trusts. While it seems likely that that a substantial recovery on such claims would indirectly benefit the Debtor, the fact remains that Debtor seeks extensive discovery on claims his bankruptcy estate does not own.4

b. Derivative Claims. The Debtor also has alleged that there may be valid shareholder derivative claims against ARCO's officers, directors, and/or shareholders. Any such claims would be owned by ARCO, not Debtor or even the MPK Trusts. See generally Marchman v. NCNB Texas Nat. Bank, 120 N.M. 74, 81, 898 P.2d 709 (S. Ct. 1995). The benefit to Debtor of a successful derivative claim is more attenuated than a successful direct shareholder claim.

An examination of matters having no relationship to the debtor's affairs and no effect on the administration of his estate is improper. In re Wilcher, 56 B.R. at 433; In re Yahweh Center, Inc., 2017 WL 327473 *2 (Bankr. E.D.N.C. 2017) ("[F]or information sought from third parties, requests must bear some relation `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, or to the debtor's right to a discharge.'"). Here, the fact that the claims are not estate assets weakens the Rule 2004 Motion.

3. Proper Representative. If the Trusts have a direct action against ARCO, and/or if there are derivative claims against ARCO's officers, directors, or shareholders, the question remains whether Debtor is a proper party to bring those claims. His interests diverge from the interests of the remainder beneficiaries. Further, he wants to sue the remainder beneficiaries. If a trust owns stock and has multiple, conflicting beneficiaries, who gets to decide whether to bring an alleged minority oppression claim? How could anyone fairly represent all beneficiaries? These are difficult questions.5

2. Pending Proceeding Rule. If an adversary proceeding or contested matter is pending between the same two parties, the rules of civil procedure should be used, rather than Bankruptcy Rule 2004. See In re Blinder, Robinson & Co., 127 B.R. 267, 274 (D. Colo. 1991), citing In re Valley Forge Plaza Assocs., 109 B.R. 669, 674-75 (Bankr. E.D. Pa. 1990). This is the "pending proceeding rule."

A Rule 2004 request must concern evidence relevant to the pending proceeding for the pending proceeding rule to apply. Brooke Corp., 2013 WL 3948866, at *3 ("Where a party requests a Rule 2004 examination and an adversary proceeding or other litigation in another forum is pending between the parties, the relevant inquiry is whether the Rule 2004 examinations will lead to the discovery of evidence related to the pending proceeding or whether the requested examination seeks to discover evidence unrelated to the pending proceeding."). See generally In re Wash. Mut., 408 B.R. 45, 51 (Bankr. D.Del. 2009) ("The primary concern of courts is the use of Rule 2004 examinations to circumvent the safeguards and protections of the Federal Rules of Civil Procedure").

Here, there are two pending proceedings that arguably implicate the pending proceeding rule. First, the State Court Action is still pending. See, e.g., Snyder v. Society Bank, 181 B.R. 40, 42 (S.D. Tex. 1994) ("The use of Rule 2004 to further its case in state court constitutes an abuse of Rule 2004."); Hopewell Intern. Ins., 258 B.R. 580, 587 (Bankr. S.D.N.Y. 2001) (denying Rule 2004 motion based on arbitration pending in foreign country). There is a legitimate question whether some or all of the claims Debtor now is considering should have been brought in the State Court Action. See, e.g., Potter v. Pierce, 342 P.3d 54, 57 (N.M. 2015) ("[R]es judicata will preclude a ... claim only if the claim reasonably could and should have been brought during the earlier proceeding"). Until that question is answered, it may not be appropriate to use Rule 2004 broadly.

Second, the adversary proceeding Debtor filed against the Abruzzos is pending. Debtor's initial Rule 2004 motion cited the need for documents to evaluate the disputes at issue in the adversary proceeding.

3. Scrutiny of Pre-Litigation Discovery. As mentioned above, Rule 2004 can be legitimately used as a pre-litigation discovery device. However, because nowhere else in the rules of federal or state civil procedure are parties allowed to go on pre-litigation "fishing expeditions," bankruptcy courts should be careful to balance the estate's right to pre-litigation discovery with the target's right to be protected against improper, unwarranted, or unduly burdensome discovery.

4. Use of Rule 2004 to Harass. Bankruptcy courts should protect Rule 2004 targets from abuse or harassment. Given the history between the parties, including Judge Malott's finding that the Debtor desires to bring additional litigation against the Abruzzos/ARCO, the Court is concerned that Debtor's extremely broad Rule 2004 Motion could be motivated, at least in part, by an improper purpose.

5. Issue and Claim Preclusion. There are serious questions whether the claims Debtor wishes to bring are barred by applicable preclusive doctrines. Despite the Debtor's position that the new claims are not owned by him, and therefore are not precluded by his loss in the State Court Action, the similarity between the claims is marked, and the fact that he proposes to be the plaintiff in the new claims makes the preclusion risk real. See generally Wilcher, 56 B.R. at 440 (denying a Rule 2004 motion because the discovery "could only lead to causes of action ...which have been foreclosed" by res judicata and collateral estoppel).

6. Debtor's Changing Justification for Seeking ARCO Documents. The history of the Rule 2004 Motion raises questions about the Debtor's motivation. In the original Rule 2004 motion, Debtor justified his request for ARCO documents by the need of potential successor trustees to review them, and/or to defend against the Abruzzos' stay relief motions. The current Rule 2004 Motion, on the other hand, focuses on evaluating potential claims against ARCO and its officers, directors, and stockholders. The shift in rationale and emphasis makes the Court wonder about the Debtor's actual motivation for the document request.

7. Information Already in Debtor's Possession. In paragraph 7 of the Rule 2004 motion, Debtor alleges that the Abruzzos centralized control of ARCO and deprived Debtor of his fair share of profits; that the Abruzzos inflate their own salaries to depress dividends; that ARCO retains earnings and inflates costs; and that the Abruzzos usurp corporate opportunities by engaging in side deals for their personal gain. Based on these allegations, Debtor alleges that "Past due income-from dividends that ARCO improperly withheld-could be the bankruptcy estate's most valuable asset, and recovering those past due payments likely represents the best opportunity for a meaningful recovery to creditors in this case." Presumably, the Debtor believes he has enough evidence to support these strong allegations. That evidence, together with the Produced ARCO Documents, should be sufficient to evaluate any potential claims.

8. Confidentiality. Debtor has agreed to keep any documents ARCO produces confidential. Given Debtor's history of violating such confidentiality strictures, as well as Judge Malott's findings about the Debtor's truthfulness, ARCO obviously, and legitimately, is concerned whether any documents it produces would remain confidential.

9. Best Interests of Creditors. It is relevant that the Debtor's creditors do not want the Debtor to keep litigating with the Abruzzos and/or ARCO. The Unsecured Creditors' Committee has told the Court a number of times that it does not think further litigation is in creditors' best interests. Judge Malott stated his opinion that the Debtor wanted to keep suing the Abruzzos: "the clear indication that future litigation will ensure [sic] ...." It is reasonable for the Court to take into account the possibility that the Debtor may be motivated by a vendetta rather than a desire to pay his creditors.

C. Weighing the Factors.

All things considered, the Court concludes that it would be fair and reasonable to give Reid, Collins & Tsai access to the Produced ARCO Documents.6 From what the Court can tell, Reid Collins & Tsai is a reputable firm, employing very able counsel. The Court has no reason to doubt that, if given access to the Produced ARCO Documents, Reid Collins & Tsai would keep the documents confidential.

On the other hand, the Court does not believe it is necessary or desirable to order ARCO to produce additional documents. The Court concludes that the Debtor already has enough information to evaluate the potential claims. Unlike most Rule 2004 motions seeking pre-litigation discovery, there has already been both extensive litigation and extensive discovery involving the Debtor and ARCO. While it is always nice to get more information, the Court finds that no more information is needed before the Debtor can evaluate any potential claims against ARCO. On balance, the Court finds and concludes that the burdens on and risks to ARCO of additional production outweigh the potential benefits to the estate. The Court also finds that there are enough difficulties and "red flags" relating to the potential claims and the Debtor's motivations to justify a cautious and conservative response to the Rule 2004 Motion.

III. CONCLUSION

Rule 2004 is broad enough to allow the Court to grant Debtor's Rule 2004 Motion in its entirety. However, for the reasons state above, the Court is unwilling to require ARCO to produce more documents than it already has, let alone open the flood gates as wide as Debtor asks. Rather, the Court believes that a reasonable response to the Rule 2004 Motion is to allow Reid Collins & Tsai to review the Produced ARCO Documents. A separate order will be entered.