A bankruptcy court has authority to issue a so-called consent directive, according to the Ninth Circuit Bankruptcy Appellate Panel.
The BAP’s June 5 opinion is evidently the first appellate authority confirming that bankruptcy judges have power to compel a litigant to authorize a third party to turn over documents.
What is a consent directive? As explained in the BAP opinion by Bankruptcy Judge Laura S. Taylor, it is “a rara avis [rare bird] in the bankruptcy world.” It is, she said, “not necessarily or even often consensual: reported decisions involve cases where a court compels a person to sign the document.”
In the case on appeal, the proposed consent directive, if approved by the court and signed by the debtor, would have authorized banks around the world to “disclose all information and deliver copies of all documents” to the bankruptcy trustee pertaining to the debtor’s accounts, if any.
The Recalcitrant Debtor
In the case at bar, the trustee sought a consent directive as a last resort.
The debtor was in chapter 7 involuntarily. Facing indictment, he and his wife fled to France, allegedly taking estate assets with them, according to the trustee. The French courts refused to extradite the debtor, Judge Taylor said.
Given what Judge Taylor characterized as the debtor’s “extraordinary lack of cooperation,” the trustee sought the bankruptcy court’s aid by compelling the debtor to sign a consent directive that would be issued to international financial institutions “in an attempt to identify undisclosed . . . accounts [belonging to the debtor].”
To avoid the Fifth Amendment’s privilege against self-incrimination and comply with non-bankruptcy case law, the consent directive would not have required the debtor to admit “the existence of any account at any particular financial institution,” Judge Taylor said.
The debtor opposed issuance of the consent directive “with vehemence,” Judge Taylor said. The bankruptcy judge denied the request, believing that Bankruptcy Rule 2004 did not give necessary power to the court. The BAP granted leave for the trustee to take an interlocutory appeal.
The BAP Opinion
Judge Taylor described how consent directives were dreamed up by the lower courts and approved by three circuit courts in the 1980s. With one dissenter, the Supreme Court gave its blessing to consent directives in Doe v. U.S., 487 U.S. 201 (1988), so long as it was not testimonial and thus would not violate the Fifth Amendment.
In non-bankruptcy cases, district courts rely on the All Writs Act, 28 U.S.C. § 1651, to issue consent directives. In criminal cases, power comes from 28 U.S.C. § 1826 governing grand jury witnesses. According to Judge Taylor, federal agencies obtain consent directives based on their powers to issue subpoenas and compel testimony from witnesses.
In the civil context, Judge Taylor said, “courts have also authorized consent directives based on their ‘broad discretion’ to supervise discovery.”
By analogy, the BAP held that bankruptcy courts may issue and enforce consent directives given “the obligations and enforcement mechanisms created by the Code and the investigatory tools available to the trustee.” Specifically, Judge Taylor found authority in Section 704 (giving a trustee the statutory duty to collect estate property), Section 521(a) (requiring a debtor to surrender estate property), Section 105 (which “vests bankruptcy courts with broad residual power”), and Bankruptcy Rule 2004 (the rule providing broad discovery powers, including fishing expeditions).
Judge Taylor said that finding power to issue a consent directive “does not mean that a consent directive should issue under the present facts.” The BAP therefore reversed the lower court and remanded the case for the bankruptcy judge to decide whether issuance of a consent directive was a proper exercise of the court’s discretion in the case at hand.
Judge Taylor limited the opinion to finding power for the issuance of a consent directive at the request of a trustee. She said, “we stop short of a determination that Rule 2004, in isolation, would justify issuance of a consent directive to anyone other than a chapter 7 trustee.” In the case on appeal, she said that issuing a directive was “firmly tethered to the trustee’s Section 704 statutory duties.”