In re Archdiocese of Saint Paul & Minneapoli

553 B.R. 693

In re: The Archdiocese of Saint Paul and Minneapolis, Debtor.

Case No. 15–30125

United States Bankruptcy Court, D. Minnesota.

Signed July 28, 2016

Richard D. Anderson, Benjamin Gurstelle, John R. McDonald, Aaron G. Thomas, Briggs and Morgan PA, Charles E. Nelson, Lindquist & Vennum LLP, Minneapolis, MN, for Debtor.

MEMORANDUM AND ORDER DENYING SUBSTANTIVE CONSOLIDATION

Robert J. Kressel, United States Bankruptcy Judge

This chapter 11 case came on for hearing on the motion of the unsecured creditors committee to substantively consolidate the debtor and over 200 Catholic nonprofit, non-debtor entities.

Edwin H. Caldie and Robert T. Kugler appeared on behalf of the unsecured creditors committee. Richard D. Anderson and Benjamin E. Gurstelle appeared on behalf of the debtor. Dennis D. O'Brien appeared on behalf of the parish committee. Mary Jo A. Jensen–Carter appeared on behalf of a group of parishes. Phillip L. Kunkel appeared on behalf of the Catholic Community Foundation of Minnesota, Benilde–St. Margaret's School, and Grace High School dba Totino–Grace High School. S. Steven Prince appeared on behalf of DeLaSalle High School. Adam C. Ballinger appeared on behalf of Our Lady of Grace Church. Michael J. Iannacone appeared on behalf of the Catholic Finance Corporation, Faithful Shepherd Catholic School, the Guardian Angels Catholic Church of Oakdale, Minnesota, and other churches. Cameron A. Lallier appeared on behalf of the Church of Saint Anne–Saint Joseph Hien. Jeffrey R. Anderson and Michael G. Finnegan appeared on behalf of certain personal injury creditors. Paul L. Ratelle appeared on behalf of the Church of St. Patrick of Edina, Minnesota. Alyssa M. Troje appeared on behalf of St. Dominic Catholic Church, St. Stephen's Catholic Church, and others. John A. Hedback appeared on behalf of The Catholic Cemeteries. Andrew T. Brever appeared on behalf of the Church of St. Charles Borromeo of Minneapolis, Minnesota. Sarah J. Wencil appeared on behalf of the United States Trustee. Louis T. DeLucia appeared telephonically on behalf of the Catholic Mutual Relief Society of America. Pamela J. Tillman appeared telephonically on behalf of TIG Insurance Company. Peter J. Horst appeared telephonically on behalf of certain underwriters at Lloyd's, London. Russell W. Roten appeared telephonically on behalf of certain underwriters at Lloyd's, London. Joshua D. Weinberg appeared telephonically on behalf of Hartford Accident and Indemnity Company.

The court has jurisdiction over this proceeding under 28 U.S.C. §§ 157(a) and 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). For reasons stated below, the motion is denied.

PROCEDURAL HISTORY

The Archdiocese of Saint Paul and Minneapolis filed a voluntary chapter 11 petition on January 16, 2015. On May 23, 2016, the unsecured creditors committee moved to substantively consolidate the debtor and over 200 non-debtor Catholic entities, naming the following entities as targets: 187 parishes in the Archdiocese, consolidated schools, the Catholic Community Foundation of Minnesota, the Francophone African Chaplaincy, Segrado Corizon de Jesus [sic ], the Chaplaincy of Gichitwaa Kateri [sic ], Newman Center and Chapel [sic ], the Catholic Finance Corporation, The Catholic Cemeteries, Totino Grace High School, DeLaSalle High School, and Benilde–St. Margaret High School [sic ]. The committee did not assert or seek derivative standing. Certain personal injury creditors joined the committee's motion.

The debtor and numerous targeted entities objected. On June 2, 2016, I ordered Federal Rule of Bankruptcy Procedure 7012 to apply to the motion. In response, the debtor and many targeted entities filed motions for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) or to dismiss for failure to state a claim for relief under Federal Rule of Civil Procedure 12(b)(6), as applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012(b). The following parties filed motions for judgment on the pleadings or to dismiss the substantive consolidation motion: the debtor; the parish committee; the Catholic Community Foundation of Minnesota; Benilde–St. Margaret's School, DeLaSalle High School, and Grace High School dba Totino–Grace High School; Church of St. Patrick of Edina, Minnesota; Our Lady of Grace Church; the Catholic Finance Corporation; and Faithful Shepherd Catholic School, Guardian Angels Catholic Church of Oakdale, Church of St. Joseph of Rosemount, and Church of St. Thomas Becket. Some movants joined in other movants' motions.

Other parties joined in certain motions opposing consolidation. A large group of parishes joined in the motions filed by the debtor, the parish committee, and others. St. Dominic Catholic Church, St. Stephen's Catholic Church and School, Church of St. Thomas the Apostle, St. Ambrose of Woodbury, St. Bartholomew Catholic Faith Community, Church of St. Pius X, Christ the King Church, the Church of the Incarnation, St. Vincent de Paul Catholic Church, the Church of the Epiphany, Immaculate Heart of Mary, St. Michael Catholic Church, and Saint Peter Claver Church joined in the motions filed by the debtor, the parish committee, and St. Patrick of Edina. The Catholic Cemeteries joined in the motion filed by the debtor. The Church of St. Charles Borromeo joined in the motions filed by the debtor, the parish committee, and St. Patrick of Edina. The Church of Saint Anne–Saint Joseph Hien joined in the motions filed by the debtor, the parish committee, and St. Patrick of Edina.

DISCUSSION

Motion to Dismiss and Motion for Judgment on the Pleadings

I ordered Federal Rule of Bankruptcy Procedure 7012 applicable to the substantive consolidation motion. Rule 7012(b) provides that Federal Rule of Civil Procedure 12(b)–(i) applies. Fed. R. Bankr.P. 7012, incorporating Fed.R.Civ.P. 12(b)–(i).

A party may move to dismiss for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6), as incorporated by Fed. R. Bankr.P. 7012(b). When reviewing motions to dismiss under Civil Rule 12(b)(6), courts accept factual allegations as true, construing all reasonable inferences from those allegations in favor of the non-movant. Blankenship v. USA Truck, Inc ., 601 F.3d 852, 853 (8th Cir.2010) (citation omitted). “A motion to dismiss should be granted if it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief.” Trooien v. Mansour, 608 F.3d 1020, 1026 (8th Cir.2010) (quotation omitted). The complaint must “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible if “the plaintiff pleads [sufficient] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citation omitted). Plausibility “requires more than labels and conclusions.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. “[A] formulaic recitation of the elements of a cause of action will not do.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quotation omitted).

A party may move for judgment on the pleadings after the pleadings are closed. Fed.R.Civ.P. 12(c), as incorporated by Fed. R. Bankr.P. 7012(b). On a Federal Rule of Civil Procedure 12(c) motion, if matters outside the pleadings are presented to the court and the court does not exclude them, the motion is treated as a motion for summary judgment under Federal Rule of Civil Procedure 56. Fed.R.Civ.P. 12(d), as incorporated by Fed. R. Bankr.P. 7012(b).

The grant of either a motion to dismiss or a motion for judgment on the pleadings is proper when there is no material fact in dispute and the movant is entitled to judgment as a matter of law. Greenman v. Jessen, 787 F.3d 882, 887 (8th Cir.2015) (quotation omitted). Generally, a court may not consider materials outside the pleadings, but courts may consider certain “materials that are part of the public record” and “materials necessarily embraced by the pleadings” such as “matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint.” Id. (quotation omitted).

Standing

The debtor and many of the targeted entities argue that the committee's request for substantive consolidation should be denied because the committee lacks standing to seek substantive consolidation. They argue that only the trustee or debtor-in-possession has standing to pursue turnover, avoidance, or recovery actions regarding property of the estate. The Eighth Circuit has not ruled on whether an unsecured creditors committee has standing to pursue substantive consolidation.

Generally, for standing in a chapter 11 case, a party must satisfy statutory standing under 11 U.S.C. § 1109, constitutional standing under Article III, and the evolving prudential standing requirements. See Hughes v. Tower Park Props., LLC (In re Tower Park Props., LLC), 803 F.3d 450, 456 (9th Cir.2015).

Section 1109(b) provides that “[a] party in interest, including the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.” 11 U.S.C. § 1109(b). Clearly, the committee has statutory standing. This contrasts with the statutory avoidance powers where Congress has bestowed exclusive standing on the trustee, or in reorganization cases, the debtor in possession.

To have “constitutional standing, the plaintiff must show that it has suffered an ‘injury in fact’ that is: concrete and particularized and actual or imminent; fairly traceable to the challenged action of the defendant; and likely to be redressed by a favorable decision.” United States v. United Sec. Sav....