Roe v. Catholic Charities Archdiocese Orleans

RALPH ROE v. CATHOLIC CHARITIES ARCHDIOCESE OF NEW ORLEANS, et al.

CIVIL ACTION NO. 20-1829 SECTION M (5)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

October 13, 2020

ORDER & REASONS

Before the Court is the motion of plaintiff Ralph Roe to remand this case to state court.¹ Defendant Catholic Charities Archdiocese of New Orleans ("Catholic Charities") opposes the motion,² which opposition defendant Harold Thomas Ehlinger adopts.³ Roe replies in further support of his motion.⁴ Having considered the parties' memoranda, the record, and the applicable law, the Court issues this Order & Reasons denying the motion to remand.

I. BACKGROUND

This case involves alleged sexual and physical abuse of a minor by staff (including clergy, brothers, sisters, and lay employees) at the Hope Haven-Madonna Manor orphanage in approximately 1982 or 1983.⁵ On May 1, 2020, because of similar allegations in a multitude of other cases, the Roman Catholic Church of the Archdiocese of New Orleans (the "Archdiocese"), a named defendant in the vast majority of these cases, filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code in the United States BankruptcyCourt for the Eastern District of Louisiana.⁶ The present case was filed in the Civil District Court for the Parish of Orleans on June 16, 2020, against defendants Catholic Charities and Ehlinger.⁷ The Archdiocese was not named as a defendant. Catholic Charities removed the case to federal court, arguing that this Court has "related to" subject-matter jurisdiction under 28 U.S.C. §§ 1334 & 1452(a) and Rule 9027 of the Federal Rules of Bankruptcy Procedure based on the Archdiocese's bankruptcy case.⁸ At the heart of this dispute are four liability insurance policies owned by the Archdiocese, but also purportedly covering Catholic Charities, in which the proceeds, if paid out, will only inure to the benefit of injured third parties.⁹

II. PENDING MOTION

Roe argues that remand is appropriate because Catholic Charities is a separate entity from the Archdiocese so the outcome of this suit cannot affect the Archdiocese's bankruptcy case in such a way as would support removal.¹⁰ He contends that "related to" jurisdiction is not boundless and the insurance policies do not provide a sufficient connection to justify removal because the proceeds of those policies will never pay out to the Archdiocese or have any effect on the debtor's bankruptcy estate.¹¹ Further, Catholic Charities has not met its burden of proving jurisdiction, he argues, because it never provided the full copies of the insurance policies or a complete picture of its insurance coverage.¹² In the alternative, Roe argues that equity and permissive abstention justify remand.¹³

In opposition, Catholic Charities argues that "related to" jurisdiction is broad and the debtor does not have to be included as a defendant for such jurisdiction to be proper.¹⁴ It asserts that the insurance policies and proceeds are both property of the debtor's estate and therefore provide the basis for "related to" jurisdiction.¹⁵ In addition, Catholic Charities contends that such jurisdiction exists because "the Archdiocese will be heavily involved in this litigation at significant expense to itself and the bankruptcy estate, and would be directly impacted by any rulings on prescription or on the merits."¹⁶ Catholic Charities concludes by asserting that neither equitable remand nor permissive abstention is appropriate under the various factors to be weighed.¹⁷

III. LAW & ANALYSIS

A. "Related to" Jurisdiction and the Remand Standard

In bankruptcy cases, 28 U.S.C. § 1452(a) provides that a party may remove a claim to a district court if that court has jurisdiction of such claim under 28 U.S.C. § 1334. Section 1334 states "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b) (emphasis added). Although broad, the scope of "related to" jurisdiction is not "limitless." Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995). The Fifth Circuit has explained the scope of "related to" jurisdiction: "Before confirmation of the bankruptcy plan, a proceeding is related to the bankruptcy case if the 'outcome could conceivably have any effect on the estate being administered in bankruptcy.'" In re Galaz, 841 F.3d 316, 322 (5th Cir. 2016) (quoting In reSpillman Dev. Grp., Ltd., 710 F.3d 299, 304 (5th Cir. 2013)); see also Double Eagle Energy Servs., L.L.C. v. Markwest Utica EMG, L.L.C., 936 F.3d 260, 263 (5th Cir. 2019) (noting parenthetically "that section 1334(b) requires only that the claim conceivably affect the bankruptcy estate"); Passmore v. Baylor Health Care Sys., 823 F.3d 292, 295 (5th Cir. 2016) ("A proceeding is 'related to' a bankruptcy if the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.") (quoting In re Bass, 171 F.3d 1016, 1022 (5th Cir. 1999)); In re KSRP, Ltd., 809 F.3d 263, 266 (5th Cir. 2015) ("'Related to' jurisdiction includes any litigation where the outcome could alter, positively or negatively, the debtor's rights, liabilities, options, or freedom of action or could influence the administration of the bankrupt estate.") (quoting Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 386 (5th Cir. 2010)). Because federal courts have limited jurisdiction, the removal statute is strictly construed, and any ambiguities are construed against removal and in favor of remand. Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). The party seeking removal has the burden of establishing that federal jurisdiction exists and that removal was proper. Id.

B. The Absence of the Judgment Debtor as a Party to the Action Is Not Conclusive Evidence of Whether Remand Is Appropriate.

It is not dispositive that the Archdiocese is not a defendant in this case. "It is well-established that, to be 'related to' a bankruptcy, it is not necessary for the proceeding to be against the debtor or the debtor's property." In re Prescription Home Health Care, Inc., 316 F.3d 542, 547 (5th Cir. 2002). One purpose of "related to" jurisdiction "is to force into the bankruptcy court suits to which the debtor need not be a party but which may affect the amount of property in the bankrupt estate." In re Zale Corp., 62 F.3d 746, 752 (5th Cir. 1995) (quoting Zerand-Bernal Grp., Inc. v. Cox, 23 F.3d 159, 161-62 (7th Cir. 1994)). Therefore, while theArchdiocese's absence from this case plays a role in the analysis, it does not resolve the question before the Court.

C. Since the Limited Proceeds of the Liability Policies May Be Overcome by Competing Claims, They Are "Related to" the Bankruptcy Case and, Therefore, Removal Is Proper.

The analysis of whether insurance proceeds belong to a bankruptcy estate "has a complicated history." In re OGA Charters, L.L.C., 901 F.3d 599, 602 (5th Cir. 2018). While it is unquestioned that a liability insurance policy belonging to a debtor is property of the debtor's bankruptcy estate, whether the proceeds of that policy belong to the estate is determined on a case-by-case, fact-specific basis. Id. at 603. "The overriding question when determining whether insurance proceeds are property of the estate is whether the debtor would have a right to receive and keep those proceeds when the insurer paid on a claim." In re Edgeworth, 993 F.2d 51, 55 (5th Cir. 1993). Generally, the recipient of the proceeds, whether the debtor or a third party, controls the analysis:

On one extreme, when a debtor corporation owns a liability policy that exclusively covers its directors and officers, we know ... that the proceeds of that D&O policy are not part of the debtor's bankruptcy estate. On the other extreme, when a debtor corporation owns an insurance policy that covers its own liability vis-à-vis third parties, we - like almost all other courts that have considered the issue - declare or at least imply that both the policy and the proceeds of that policy are property of the debtor's bankruptcy estate.

In re Vitek, Inc., 51 F.3d 530, 535 (5th Cir. 1995) (emphasis in original; citation and footnotes omitted). The issue in any new case, then, is finding where along this well-defined spectrum the subject liability policy's proceeds land. Id. ("In this circuit, we are therefore in the position of knowing how to resolve cases on either end of the continuum, but we have not yet decided how to resolve cases lying somewhere along the continuum.").

Resolving this question on the facts of this case demands that the Court look to a more recent Fifth Circuit decision examining what happens when the proceeds of a liability policy are not to be paid to the debtor, but the number of competing claims by third parties could overcome the policy limits and expose the debtor to liability for the excess. On this point, the court held just two years ago: "In the 'limited circumstances' ... where a siege of tort claimants threaten[s] the debtor's estate over and above the policy limits, we classify the proceeds as property of the estate." OGA Charters, 901 F.3d at 604. Even before OGA Charters, this departure from a strict "follow-the-proceeds" rule - that is, where classification of the proceeds as property of the estate depended upon their ending up in the hands of the debtor, as opposed to a third party or parties - was "long contemplated" by the court. Id.; see also In re Vitek, 51 F.3d at 535 (noting that some courts reject the policy/proceeds dichotomy because "it exposes a debtor's insurance policies to suit outside the ambit of the bankruptcy estate," and these courts "fear that splitting the proceeds of a liability policy between bankrupt and non-bankrupt insureds would create a race to the courthouse whenever potential liability exceeds total proceeds, as creditors scurry to see who can be first to get a judgment against the...