USA GYMNASTICS, Debtor

Case 18-09108-RLM-11 Doc 562 Filed 06/05/19 EOD 06/05/19 16:35:52 Pg 1 of 21 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION In re: Chapter 11 1 USA GYMNASTICS, Case No. 18-09108-RLM-11 Debtor. DEBTOR’S OBJECTION TO COMMITTEE’S 2004 MOTION USA Gymnastics, as debtor and debtor in possession in the above-captioned chapter 11 case (the “Debtor” or “USAG”), objects to The Additional Tort Claimants Committee Of Sexual Abuse Survivors’ Motion For An Order Pursuant To Bankruptcy Rule 2004 Directing Production Of Documents And Materials From USA Gymnastics [Dkt. 519] (the “Rule 2004 Motion”). INTRODUCTION On April 24, and May 8, 2019, the Sexual Abuse Survivors Committee (“Committee”) served the Debtor with two overly-broad document demands seeking a wide-range of documents without any time limits whatsoever. In total, the Committee sought over 102 categories of documents. As the Committee concedes in its Rule 2004 Motion, in slightly over a month, in three separate productions, USAG has produced documents or provided information in response to most of the categories of documents that the Committee sought. (Rule 2004 Motion ¶¶ 16, 22-23.) Of 2 the 102 different demands, only 14 remain unanswered. 1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204. 2 In Exhibit A to its Motion, the Committee lists 16 demands it contends are unsatisfied, but one of those demands is new, as the Committee admits, and as explained below, USAG has in fact responded to one of the demands already. Case 18-09108-RLM-11 Doc 562 Filed 06/05/19 EOD 06/05/19 16:35:52 Pg 2 of 21 Those remaining 14 demands and the Committee’s one new addition are plainly objectionable under the pending litigation exception to Rule 2004. See In re SunEdison, 572 B.R. 482, 490 (Bankr. S.D.N.Y. 2017). Under that exception, if there is prior pending litigation, the parties to that litigation may not use Rule 2004 to obtain discovery that is more properly sought in the pending case. Here, the 14 remaining document requests and the one new request fall squarely within this exception. They largely duplicate discovery sought, but not allowed, in the pending pre-bankruptcy lawsuits. In fact, during the parties’ meet and confer, Committee counsel responded to USAG’s concerns about the cost of this discovery by explaining that Committee counsel did not even plan to review these documents if the Court ordered their production, but would instead simply turn the documents over to the lawyers in the pending pre-petition cases. The timing of the Committee’s requests also is suspect. The Committee waited for the Court to enter an injunction staying all of the pending pre-petition sexual abuse litigation involving third parties before serving its document demands on the Debtor (and its Rule 2004 motions on the United States Olympic Committee (“USOC”) and the National Gymnastics Foundation). Within a week following the entry of that injunction—an injunction that stayed federal District Court Judge Gordon J. Quist from hearing a motion to dismiss scheduled for argument on May 1, 2019 that raised legal issues which, if successful, would have negatively impacted the plaintiffs’ claims in this case—the Committee demanded discovery under Rule 2004 that would be barred by the injunction if sought in the underlying lawsuits. The only justification that the Committee offers for straying from the well-established rule that Rule 2004 discovery allows a party to obtain information about a debtor’s assets (which information USAG has readily supplied), but not to circumvent discovery more properly taken in a pending lawsuit, is that it needs this information to be on a “level playing field” with USAG’s 2 Case 18-09108-RLM-11 Doc 562 Filed 06/05/19 EOD 06/05/19 16:35:52 Pg 3 of 21 insurers. The Committee speculates that the Debtor has, contrary to its own interests, supplied information to the insurers to assist the insurers in claiming that there is no coverage and then demands that the Committee should be given the same information. The underlying factual and legal premises of the Committee’s argument are both false. As a matter of fact, USAG’s CGL carriers have not denied USAG’s claims based upon USAG’s alleged knowledge prior to 2016. USAG also has not supplied its insurers with the documents the Committee seeks. In fact, no such “prior knowledge” documents exist. But if USAG’s carriers rely on specific documents to deny coverage, USAG will gladly share those documents with the Committee, so that the Committee is on a “level playing field.” Furthermore, as a matter of law, USAG is not under a legal duty to assist its carriers in building a defense to coverage under its policies and has utterly no interest in doing so. USAG’s insurance coverage is key to a successful reorganization in this case. See, e.g., 4 Law of Liability Insurance § 32.03 (2019) (“[U]nder the majority rule, most courts will still relieve a policyholder of its duty to cooperate and allow it to control its own defense and settlement negotiations” where the insurer is defending under a reservation of rights) Cf., Armstrong Cleaners, Inc. v. Erie Ins. Exch., 364 F. Supp. 2d 797, 814-17 (S.D. Ind. 2005) (explaining that a reservation of rights can create a conflict of interest giving the policyholder the right to control the case); see also, Old Republic Ins. Co. v. Chuhak & Tecson, P.C., 84 F.3d 998, 1002 (7th Cir. 1996) (preventing the insurers from obtaining information in discovery favorable to the insurers coverage defenses that could “shipwreck” one of the policyholder’s defenses); Harleysville Lake States Ins. Co. v. Granite Ridge Builders, Inc., No. 1:06-cv-397, 2007 U.S. Dist. LEXIS 41725, at *8–10 (N.D. Ind. 2007) (staying discovery in the insurance coverage action on factual issues in underlying litigation). 3 Case 18-09108-RLM-11 Doc 562 Filed 06/05/19 EOD 06/05/19 16:35:52 Pg 4 of 21 The additional discovery the Committee seeks also is improper because the discovery requests are unduly burdensome and disproportionate to the needs of this case. One of the categories requested—all documents produced to Ropes & Gray—would, for example, require the production of 1.3 million documents. (Ropes & Gray Report at 17.) Further, by seeking to take “litigation” discovery in the bankruptcy case, the Committee has moved the costs of this discovery to USAG and away from its insurance carriers and the plaintiffs’ attorneys, who would have borne the cost of this discovery in the stayed lawsuits. The Committee’s Rule 2004 Motion should be denied. BACKGROUND A. The Debtor’s Informal Production Of Documents To The Committee. On April 24, 2019, the Committee asked USAG if it would produce 84 separate categories of documents that the Committee claimed were relevant to USAG’s “assets and liabilities….” (See Rule 2004 Motion, at Exhibit C, at 1.) In that email, counsel asked whether “the Debtor wants the Committee to file this as a Rule 2004 application....” Id. The next day, USAG’s counsel responded that “[w]e are reviewing and will get back to you next week. We do not believe a Rule 2004 motion is necessary.” (See Exhibit A, attached hereto.) On May 8, 2019, the Committee added an additional 18 document demands. (See Rule 2004 Motion, at Exhibit D.) USAG began rolling productions on May 10, 2019 and made further productions on May 23, 2019 and June 5, 2019, responding to all but 14 of the document demands. (See Group Exhibit B, attached hereto). USAG asserted only limited objections to the Committee’s overly-broad discovery requests objecting to a small category of the requests for certain documents based on the prior pending litigation exception to discovery under Rule 2004. (Id.) In total, USAG has produced over 4,200 pages of documents. USAG has also directed the Committee to websites and 4 Case 18-09108-RLM-11 Doc 562 Filed 06/05/19 EOD 06/05/19 16:35:52 Pg 5 of 21 public sources where additional documents are available. B. The Committee’s Rule 2004 Motion. In the midst of this production, on May 20, 2019, Committee counsel told the Debtor the Committee intended to file a Rule 2004 motion to obtain the documents that the Debtor asserted were not discoverable under Rule 2004. The next day, on May 21, 2019, counsel met about the motion. During that conference, Committee counsel addressed USAG’s concerns over the costs of the production by offering that Committee counsel would not incur fees reviewing the documents, but instead intended only incur the cost of creating a reviewing platform that the lawyers representing plaintiffs in the pending pre-petition lawsuits could use to review the documents. But just the monthly cost of maintaining a reviewing platform for over 1.3 million documents would be very significant. Following that conference, on May 22, 2019, the Committee filed its Rule 2004 Motion. As set forth in Exhibit A to that Motion, the Committee asks for all of USAG’s files, documents, and correspondence regarding sixteen different categories of documents—the fourteen requests that USAG objected to, one new request, and a request that USAG actually answered. In sum, these requests seek all of USAG’s investigations and reports of sexual abuse relating to USAG’s members, employees, coaches, and any other individuals in any way affiliated with USAG.

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