Diocese of Buffalo v. JMH 100 Doe (In re Diocese of Buffalo)

642 B.R. 350

IN RE The DIOCESE OF BUFFALO, N.Y., Debtor.

The Diocese of Buffalo, N.Y., Plaintiff,

v.JMH 100 Doe, et al., Defendants.

BK 20-10322 CLB

AP 20-1016 CLB

United States Bankruptcy Court, W.D. New York.

Signed August 11, 2022

Bond, Schoeneck & King, PLLC, Stephen A. Donato, Esq., Charles J. Sullivan, Esq., of counsel, One Lincoln Center, Syracuse, New York 13202-1355, Attorneys for The Diocese of Buffalo, N.Y.

Pachulski Stang Ziehl & Jones LLP, Ilan D. Scharf, Esq., of counsel, 780 Third Avenue, 34th Floor, New York, New York 10017, Attorneys for Official Committee of Unsecured Creditors.

Gleichenhaus, Marchese & Weishaar, PC, Scott Bogucki, Esq., of counsel, 43 Court Street, Suite 930, Buffalo, New York 14202, Co-Counsel for Official Committee of Unsecured Creditors.

Lipsitz Green Scime Cambria LLP, Amy Keller, Esq., of counsel, 42 Delaware Avenue, Suite 120, Buffalo, New York 14202, Attorneys for 49 Claimants.

Office of the U.S. Trustee, Joseph W. Allen, Esq., Olympic Towers, 300 Pearl Street, Suite 401, Buffalo, New York 14202.

DECISION & ORDER

Carl L. Bucki, Chief U.S.B.J.

Section 362(a) of the Bankruptcy Code imposes an automatic stay of the commencement or continuation of most litigation against a debtor. The present motion presents again the related issue of whether this Court should also stay actions involving affiliated entities.

The Diocese of Buffalo, N.Y., filed a petition for relief under Chapter 11 of the Bankruptcy Code on February 28, 2020. Since that date, more than 900 individuals have submitted proofs of claim for damages allegedly arising from instances of sexual abuse. Meanwhile, many of these claimants also initiated actions in state court to recover damages for the same injuries from parishes or other entities affiliated with the Diocese. Concerned that the prosecution of claims against affiliates would impair its ability to develop a plan of reorganization, the debtor commenced Adversary Proceeding No. 20-1016 and has filed multiple motions, all for the purpose of staying affiliate litigation even if the Diocese is not itself named as a defendant.

Most of the relevant facts are recited in four published decisions that address prior requests by the Diocese to stay actions against parishes and affiliated entities. See In re Diocese of Buffalo, N.Y. , 618 B.R. 400 (Bankr. W.D.N.Y. 2020) ; In re Diocese of Buffalo, N.Y. , 623 B.R. 354 (Bankr. W.D.N.Y. 2020) ; In re Diocese of Buffalo, N.Y. , 626 B.R. 866 (Bankr. W.D.N.Y. 2021) ; and In re Diocese of Buffalo, N.Y. , 633 B.R. 185 (Bankr. W.D.N.Y. 2021). We incorporate these decisions into the present opinion, and repeat only those facts that are pertinent to the current request for the extension of a temporary injunction.

The debtor and the Official Committee of Unsecured Creditors (the "Committee") have negotiated a series of stipulations to stay litigation that abuse victims have commenced in state court against the parishes and affiliates of the Diocese. However, in a decision issued on December 7, 2020, we held that the Committee possessed only limited authority to negotiate on behalf of creditors, and that individual creditors could reject any such agreement. See In re Diocese of Buffalo, N.Y. , 623 B.R. 354 (Bankr. W.D.N.Y. 2020). Consequently, the Committee's stipulation would not apply to objecting plaintiffs. In response to this decision, the debtor moved for the imposition of a non-consensual stay.

On March 31, 2021, we enjoined non-consenting plaintiffs from the further prosecution of claims against parishes and affiliates until October of 2021. In re Diocese of Buffalo, N.Y. , 626 B.R. 866 (Bankr. W.D.N.Y. 2021). Then, in a decision dated October 21, 2021, this Court exercised its authority under 11 U.S.C. § 105(a) to continue this stay through August 31, 2022. In re Diocese of Buffalo, N.Y. , 633 B.R. 185 (Bankr. W.D.N.Y. 2021). Recognizing the imminent termination of this injunction, the Diocese now moves to extend the stay through May 31, 2023. Forty-nine plaintiffs object.¹ In particular, they contend that further delay has the potential to irreparably harm the possibility of recovery for wrongs committed.

Discussion

We have previously observed that "the Chapter 11 case of the Diocese of Buffalo is extremely complicated." In re Diocese of Buffalo, N.Y. , 633 B.R. 185, 189 (Bankr. W.D.N.Y. 2021). Parishes and affiliates have themselves asserted claims against the Diocese for contribution and indemnity. Consequently, these potential state court defendants "have prospectively converted any judgment against them into a claim against the Diocese." Id . at 188. For this reason, "piecemeal litigation against some parishes will further entangle an already knotty situation and threatens to impair efforts to achieve a global resolution of claims for child abuse." Id. at 189. Nonetheless, our willingness to defer litigation against non-debtors is not without limits. Thus, on the occasion of our previous grant of a temporary injunction against litigation involving affiliated entities, we held that "[t]he justification for a stay under 11 U.S.C. § 105(a) will surely begin to evaporate if the debtor procrastinates in working toward a global and just settlement." Id.

With appropriate dispatch, the debtor has adopted strategies to resolve outstanding disputes. On October 21, 2021, this Court granted its most recent extension of a stay of litigation against parishes and affiliates. Only eight days later, the Diocese moved to refer this Chapter 11 case and two related adversary proceedings to mandatory global mediation. After giving due...