In re Roman Catholic Church of Archdiocese of Santa Fe

In re: ROMAN CATHOLIC CHURCH OF THE ARCHDIOCESE OF SANTA FE, Debtor.

Case no. 18-13027-t11

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

February 4, 2021

OPINION

Debtor and the parish defendants in three adversary proceedings brought by the unsecured creditors committee (UCC) have appealed the Court's order allowing the UCC to bring the proceedings on behalf of the bankruptcy estate. Before the Court is Debtor/parishes' motion for a stay pending the outcome of the appeal. The Court concludes that the motion is not well taken and should be denied.

A. Findings of Fact.¹

For the purpose of ruling on the motion, the Court finds:

On February 24, 2020, the UCC wrote a letter to the Debtor, asking that the Debtor bring certain avoidance actions or agree that the UCC could bring them on behalf of the bankruptcy estate. The gist of the proposed actions was that Debtor allegedly transferred to its 93 parishes most of Debtor's property, without consideration, and with the intent to hinder, delay, or defraud its creditors (almost entirely sex abuse claimants). The UCC also proposed to seek a determination that property Debtor still held title to, ostensibly for the benefit of the parishes, was in fact estate property.

Debtor did not believe that the proposed claims had merit. Debtor contended that it has always held (or holds, as the case may be) the subject assets in trust for the parishes. Because of that, Debtor did not view the transfers of legal title as part of its reorganization effort as fraudulent, nor did it believe that it owned more than "bare legal title" to most of the assets it still owned. Debtor declined to bring the claims and did not agree that the UCC could bring them.

If the claims have merit, they could be worth more than $150,000,000, making them by far the most valuable estate assets. If the claims lack merit, on the other hand, it would be an enormous waste of time and money to pursue them. Furthermore, given that the assets in question are mostly churches, schools, and cash raised from parishioners, seeking to recover and sell them to pay creditors raises potential religious freedom concerns. Finally, many of the assets could be available to pay creditors even if they are owned by the parishes, if the creditors have claims against the parishes.

The UCC filed a motion for authority to bring the avoidance actions on May 29, 2020. The matter was thoroughly briefed and argued. On October 9, 2020, the Court granted the motion. See In re Roman Catholic Church of Archdiocese of Santa Fe, 621 B.R. 502, 506 (Bankr. D.N.M. 2020) (the "Derivative Standing Order").

The Debtor and the parishes timely appealed the Derivative Standing Order to the Tenth Circuit Bankruptcy Appellate Panel (BAP). On November 20, 2020, the BAP entered an order to show cause why the appeal should not be dismissed because the Derivative Standing Order is interlocutory. That issue has now been fully briefed. On January 4, 2021, Debtor and the parishes filed with the BAP Appellants' Joint Motion for Certification of Direct Appeal to the Tenth Circuit. The parties are awaiting the BAP's decision on both the order to show cause and the joint motion.

Debtor and the parishes filed this motion for stay pending appeal on October 23, 2020. TheUCC objected timely and Debtor and the parishes have replied. The Court held a hearing on the motion on January 26, 2021. Debtor estimates that the litigation would cost the estate about $5,000,000 through all appeals. This figure includes the UCC's attorney fees, but not the attorney fees incurred by the parishes. At the hearing, the parties agreed that Debtor has the cash needed to fund the litigation.

B. Requirements for a Stay Pending Appeal.

The trial court has discretion whether to grant a stay pending appeal. See Nken v. Holder, 556 U.S. 418, 427, 433 (2009) ("a stay is an intrusion into the ordinary processes of administration and judicial review . . . [and] is not a matter of right, even if irreparable injury might otherwise result . . . . It is instead an exercise of judicial discretion dependent upon the circumstances of the case"). "The movant bears a 'heavy' burden" of showing that a stay is justified. In re Efron, 535 B.R. 516, 518 (Bankr. D.P.R. 2014), citing In re GMC, 409 B.R. 24 (Bankr. S.D.N.Y. 2009).

Courts consider the following when determining whether to grant a motion for stay pending appeal: "[1] the likelihood of success on appeal; [2] the threat of irreparable harm if the stay is not granted; [3] the absence of harm to opposing parties if the stay is granted; and [4] any risk of harm to the public interest." Homans v. City of Albuquerque, 264 F.3d 1240, 1243 (10th Cir. 2001) (internal quotations omitted); Lang v. Lang (In re Lang), 305 B.R. 905, 911 (10th Cir. BAP 2004); In re Sunland, Inc., 507 B.R. 753, 764 (Bankr. D.N.M. 2014) (citing Nken, 556 U.S. at 426). The first two elements are the most critical. Nken, 556 U.S. at 434.

The requesting party must satisfy all four elements to obtain a stay pending appeal. Sunland, Inc., 507 B.R. at 765 (stay denied); In re Deep, 288 B.R. 27, 30 (N.D.N.Y. 2003) ("failure to satisfy one prong of the standard for granting a stay pending appeal dooms the motion") (internal quote omitted); see also In re Holman, 2017 WL 3025929, at *4 (Bankr. D. Kan.) (appellant didnot demonstrate a likelihood of success on appeal, which meant that the request for a stay must be denied).

C. Do the Parishes Have Standing to Appeal?

As an initial matter, the UCC argues that the parishes lack standing to appeal the Derivative Standing Order. It is true that the parishes do not have independent standing because they are not "aggrieved" parties. See, e.g., C.W. Mining Co. v. Aquila, Inc. (In re C.W. Mining Co.), 636 F.3d 1257, 1260 (10th Cir. 2011) ("this circuit has adopted the rule, derived from the Bankruptcy Act of 1898, that appellate review of a bankruptcy court order is limited to 'persons aggrieved' by that order."). A "person aggrieved" is one whose rights or interests are "directly and adversely affected pecuniarily by the decree or order of the bankruptcy court." Id. Here, the parishes' interest in the matter is that they are being sued by the UCC. The case law is almost unanimous, however, that being a defendant does not provide standing to appeal an order authorizing the lawsuit. See, e.g., In re El San Juan Hotel, 809 F.2d 151, 155 (1st Cir. 1987) (order authorizing a suit against a defendant does not give defendant standing to appeal the order); Travelers Ins. Co. v. H.K. Porter Co., 45 F.3d 737, 743 (3d Cir. 1995) ("an order which simply allows a lawsuit to go forward does not necessarily 'aggrieve' the potential defendant for purposes of appellate standing"); In re LTV Steel Co., 560 F.3d 449, 453 (6th Cir. 2009) ("[W]e are aware of no court that has held that the burden of defending a lawsuit, however onerous or unpleasant, is the sort of direct and immediate harm that makes a party 'aggrieved' so as to confer standing in a bankruptcy appeal."); Fidelity Bank, N. A. v. M.M. Group, Inc., 77 F.3d 880, 883 (6th Cir. 1996) (being "subject[ed] to the possibility of future litigation" by a bankruptcy court order is "insufficient to confer standing"); Opportunity Fin. LLC v. Kelly, 822 F.3d 451, 458 (8th Cir. 2016) ("Generally, a bankruptcy court order allowing litigation to proceed against an adversary defendant does not make that defendanta party aggrieved"); In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325-26 (11th Cir. 2014) ("an order subjecting a party to litigation . . . does not constitute the direct harm necessary to satisfy our person aggrieved standard.").

However, even though the parishes lack independent standing, they may nevertheless be heard in this matter by virtue of Debtor's undisputed standing to appeal. In Southern Utah Wilderness Alliance v. BLM, 425 F.3d 735 (10th Cir. 2005), for example, the Tenth Circuit held:

San Juan County argues that SUWA lacks standing to challenge the Counties' purported rights of way. We need not address this issue, however, because the BLM, which does have standing, has raised the same claims and sought the same relief as SUWA, both here and before the district court. A decision on SUWA's standing, therefore, would in no way avoid resolution of the relevant issues. See Secretary of the Interior v. California, 464 U.S. 312, 319 n.3, 104 S. Ct. 656, 78 L. Ed. 2d 496 (1984); California Bankers Ass'n v. Shultz, 416 U.S. 21, 44-45, 94 S. Ct. 1494, 39 L. Ed. 2d 812 (1974).

425 F.3d at 744. The Tenth Circuit allowed SUWA to participate in the appeal. More recently, the United States Supreme Court stated:

The Third Circuit also determined sua sponte that the Little Sisters lacked appellate standing to intervene because a District Court in Colorado had permanently enjoined the contraceptive mandate as applied to plans in which the Little Sisters participate. This was error. Under our precedents, at least one party must demonstrate Article III standing for each claim for relief. An intervenor of right must independently demonstrate Article III standing if it pursues relief that is broader than or different from the party invoking a court's jurisdiction. See Town of Chester v. Laroe Estates, Inc., 581 U. S. —, —, 137 S. Ct. 1645, 1651, 198 L. Ed. 2d 64 (2017). Here, the Federal Government clearly had standing to invoke the Third Circuit's appellate jurisdiction, and both the Federal Government and the Little Sisters asked the court to dissolve the injunction against the religious exemption. The Third Circuit accordingly erred by inquiring into the Little Sisters' independent Article III standing.

Little Sisters of the Poor Saints Peter and Paul Home v. Pennsylvania, 140 S. Ct. 2367, 2379 n.6 (2020). Parties who lack standing to appeal, but who wish to be heard, are treated like amici curiae: if a like-minded party with standing does appeal, then the court will hear from the party who lacks standing. See, e.g...