The turnover power in the Bankruptcy Code does not override protections given to third parties’ email accounts by the federal Stored Communication Act, or SCA.
The opinion on Nov. 7 by Delaware Bankruptcy Judge Christopher S. Sontchi stands for the proposition that broad discovery and turnover powers under the Bankruptcy Code, even when combined with compelling circumstances, do not permit disclosure of third parties’ private emails by an internet service provider absent an exception contained in the SCA itself.
The SCA, in 18 U.S.C. Section 2702(a), bars an email provider from disclosing the contents of electronic communications without “lawful consent” by the originator, the intended recipient or the subscriber.
The case involved the foreign representatives of two banks in liquidation in Ireland who had been trying without success to recover more than $3 billion that had been loaned to insiders. The foreign proceedings were given recognition under chapter 15 of the Bankruptcy Code.
From informants, the foreign representatives were told that information about the insiders’ assets might be revealed in the email account of a certain third party. The foreign representatives unsuccessfully tried several techniques to gain access to the emails through motions under Bankruptcy Rule 2004 directed at the owner of the email account, who could not be located or served personally.
Frustrated at every turn for almost two years, the foreign representatives served a turnover motion on the email provider by invoking Section 542, arguably made available in chapter 15 cases by Section 1521. They sought the contents of the third party’s email accounts.
Invoking the protections afforded by the SCA, Judge Sontchi wrote a 44-page opinion denying the use of the turnover power to access a third party’s email account without the owner’s actual consent.
Judge Sontchi denied the turnover motion under Section 542(a) because the foreign representative failed to show by a preponderance of the evidence that the contents of the email account were property of the debtor’s estate. The foreign representative had only alleged that the accounts might be connected to a scheme to conceal the banks’ assets.
Failing under Section 542(a), the foreign representatives attempted to invoke Section 542(e), which allows a trustee to recover “recorded information” from someone who holds it, even if it is not property of the estate, so long as it relates to the debtor’s affairs.
Section 542(e) did not avail, Judge Sontchi said, because the foreign representatives offered only speculation that the emails related to the debtor’s financial condition.
In the most significant holding in the opinion, Judge Sontchi held that the SCA would bar disclosure of the third party’s emails even if Section 542(e) were applicable.
Judge Sontchi cited decisions by other courts for the proposition that the SCA does not have an “implicit exception” for civil litigation. Although he previously had entered an order saying that the foreign representatives could give consent to access on behalf of the owner of the email account, Judge Sotchi said that courts have “repeatedly” held that only the actual subscriber may give consent to disclose the contents of private email accounts.
In other words, he said, “the authority granted to bankruptcy courts does not trump the SCA’s prohibition on disclosure.”