United States: Litigation in the Bankruptcy Venue: Similarities with General Federal Practice in Regard to Privilege and Expert Discovery

Whether it's a client in financial difficulty or a client pursuing the collection of assets or debts owed, insolvency issues play a prominent role for federal practitioners with commercial and general litigation practices. However, the relatively small size and collegial nature of the bankruptcy bar in many jurisdictions — coupled with the need to move quickly when handling disputes in bankruptcy to preserve value — sometimes lead to relatively informal discovery practices in bankruptcy court. While informal exchanges of information often are sufficient to resolve disputes, practitioners should be mindful of the formal discovery processes set forth in Rule 26 of the Federal Rules of Civil Procedure (the "Rules"), as made applicable by Rule 7026 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). This article explores the mechanisms available under Rules 26(a)(2) and 26(b)(3)-(5) with respect to privilege and expert discovery in bankruptcy litigation.

Rule 26 Discovery Available in Adversary Proceedings and Contested Matters

Disputes in bankruptcy generally will be litigated via an adversary proceeding brought pursuant to Bankruptcy Rule 7001 or a contested matter under Bankruptcy Rule 9014. Such disputes often involve valuation, whether in the context of a proposed cramdown plan or a proposal to strip off a junior lien. When disputes arise as to the valuation of property, expert testimony may be required. Whether the dispute is raised as an adversary proceeding or a contested matter, discovery is governed by Bankruptcy Rule 7026, which incorporates Rule 26.¹

Expert Witness Discovery

Bankruptcy Rule 7026 provides that Rule 26 applies in adversary proceedings. Given that under Bankruptcy Rule 9014(b) Bankruptcy Rule 7026 applies in contested matters, Rule 26 also applies in contested matters. Rule 26(a)(2) requires a party to disclose the identity of any witness who will provide expert testimony. Absent a stipulation or court order to the contrary, these disclosures must occur 90 days before trial. Parties to adversary proceedings should accordingly consider whether to adjust the default disclosure schedule and obtain a stipulation or order from the court.

Another feature of Rule 26(a)(2) is that it distinguishes between witnesses who must provide a full expert report and witnesses for whom a party must merely disclose the subject matter of the testimony and a summary of the facts and opinions that will be the subject of the testimony. The rule provides that a full report is required only from witnesses retained specifically to provide expert testimony or witnesses who are employed by the party and whose duties as an employee regularly involve giving expert testimony. Expert testimony from other witnesses is subject only to the abbreviated disclosures required by the rule.

Rule 26(b)(4) governs the disclosure of, and discovery related to, expert witness testimony in adversary proceedings. This rule sets forth certain rules and procedures regarding discovery related to expert witness testimony. First, the rule provides that a party may depose any person identified as testifying expert — and if the witness is required to supply a report, that the deposition must occur only after that report is issued. Second, the rule protects against disclosure of (1) drafts of any expert report and (2) most communications between a party's attorney and any witness required to provide a report.

Asserting and Protecting the Privilege in Response to Discovery Requests

Aside from expert testimony, another key discovery issue relates to privilege. Rule 26(b)(3) protects documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer or agent). Rule 26(b)(5) requires the submission of a privilege log where a person served with a document request or subpoena objects to the production of requested documents on the ground of privilege. However, a document-by-document privilege log is not always necessary when a party has, in good faith, asserted other nonprivilege objections to the discoverability of a whole range of materials. Rule 26(b)(5) does not expressly state a deadline for submitting the privilege log. A party asserting a privilege or attorney work product must describe in detail the documents or information sought to be protected, and provide precise reasons for the objection to discovery.

Conclusion

Rules 26(a)(2) and 26(b)-(5) play important roles in adversary proceedings and contested matters in bankruptcy with respect to privilege and expert discovery. As such, litigators must take this into consideration when they step into the bankruptcy forum and an informal, abbreviated exchange of discovery is not feasible.

Originally published in the ABI Journal, July 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.