NEW YORK — In a landmark decision, the Supreme Court ruled in the 2024 Purdue case that the Bankruptcy Code does not permit the use of Chapter 11 to force claimants to absolve non-debtors of responsibility in a bankruptcy process without the claimants’ consent. This ruling was pivotal in shaping how debtors coordinate with creditors and third parties to resolve claims collectively. Despite such limitations, many are finding a way around these constraints to ensure quicker, more equitable settlements, highlighting a significant trend in bankruptcy practices.
The case of the Roman Catholic Diocese of Rockville Centre serves as a prime example of these evolving strategies. In a recent decision on December 4, 2024, Chief Bankruptcy Judge Martin Glenn confirmed a meticulously crafted Chapter 11 plan that addressed hundreds of childhood sexual abuse claims. The Diocese, along with its affiliate parishes, all located on Long Island, New York, proposed a shared resolution to these claims, channeling them into a trust which would distribute $323 million to the abuse survivors. This comprehensive approach not only settled claims against the Diocese and its parishes but also managed competing claims on insurance funds.
Leading up to this resolution, the Diocese had filed for bankruptcy in October 2020. It aimed to negotiate a broad settlement covering the extensive survivor claims and involved insurance and affiliated parishes. The parishes, not initially filing for bankruptcy, later agreed to contribute to the settlement, seeking bankruptcy protections in sync with the Diocese to maximize the benefits of a collective resolution.
The negotiation was far from straightforward, stretching out over time and delayed by the appellate process of the Purdue case. Prompted by the threat of a potential dismissal by the Diocese, Judge Glenn steered the parties towards a final mediation. This was crucial as it addressed the deeply personal impacts of the protracted process on the survivors directly affected by the abuses.
The settlement’s structure was notably influenced by the revised procedural guidelines of the Southern District of New York for rapid, prepackaged Chapter 11 filings. These guidelines enabled the parishes to swiftly secure their own bankruptcy discharge by contributing to the settlement fund. This arrangement was ratified within just over a day of the parishes filing for bankruptcy, showing the effectiveness of pre-negotiated plans.
A critical aspect of the plan addressed the Diocese, parishes, and claimant’s insurance claims, leading to insurers reacquiring their policies for around $88 million. This fund was then allotted to the abuse claimant trust. The original plan required abuse claimants to waive potential direct claims against the insurers, a proposal amended after feedback from the U.S. Trustee to ensure the process was sufficiently voluntary.
As the settlement received nearly unanimous support from abuse survivors, with about 99% of the voting claimants in favor, it marked a significant success in how bankruptcy can be used to address and resolve deeply complex and sensitive claims.
Judge Glenn hailed this innovative approach as a potential model for handling other mass tort cases post-Purdue, providing not only a framework for legal proceedings but also a foundation for ethical and expedient resolutions.
This case study reflects not only the changing landscape of bankruptcy law following pivotal Supreme Court rulings but also underscores the nuanced tactics legal practitioners must employ to navigate these waters effectively. As reflected by the Rockville case, a blend of strategic negotiation and adherence to revised legal standards can merge to form robust solutions to seemingly intransigent problems.
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