NEW YORK — In a landmark ruling that has reverberated through the legal community, the Supreme Court in 2024 clarified that the Bankruptcy Code does not permit the enforcement of a Chapter 11 plan to absolve non-debtors of claims without the explicit consent of claimants involved. This decision has significant implications for bankruptcy cases and the way claims are handled against third parties who are not directly filing for bankruptcy but are nonetheless implicated through their connection to the debtor.
This ruling was a critical element in the resolution of a high-profile Chapter 11 bankruptcy case involving the Roman Catholic Diocese of Rockville Centre, New York. On December 4, 2024, Chief Bankruptcy Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York approved an innovative plan by the Diocese that would effectively settle and conclude all claims of childhood sexual abuse. This plan also encircled the Diocese’s affiliate parishes, which had filed their separate Chapter 11 cases just before the plan’s confirmation, addressing complications regarding competing insurance claims.
The Roman Catholic Diocese of Rockville Centre, recognized as the eighth largest diocese in America, initially sought bankruptcy protection in October 2020. The filing aimed at managing the settlement with hundreds of abuse survivors amid claims on the Diocese’s insurance by other parties, including its affiliate parishes. The parishes eventually agreed to negotiate and settle their claims in exchange for a release through a Chapter 11 plan, strategizing to reach an agreement that would expedite payments from insurers to the tort claimants.
Negotiations for such a comprehensive plan were intricate and prolonged, further delayed by the appellate process concerning the Purdue decision. With the threat of a case dismissal looming, Judge Glenn directed the involved parties to a critical final mediation, emphasizing the personal toll further delays could impose on the survivors.
The mediated settlement introduced an innovative approach, utilizing amended procedural guidelines by the Southern District of New York designed for rapid prepackaged Chapter 11 cases. These amended guidelines allowed the affiliate parishes co-covered by the plan to seek their own bankruptcy discharge for the claims against them as part of their settlement contribution. This approach helped achieve near-unanimous support from claimants, with the joint plan between the Diocese and its parishes being confirmed swiftly after nearly 99% of the abuse claimants who voted, approximately 75% of all claimants, gave their approval.
Another pivotal aspect of the settlement involved negotiating resolutions with insurers, where the insurers agreed to buy back their policies for approximately $88 million. These funds were directed into the abuse claimant trust under the plan, crafting a comprehensive resolution that previously faced objections. Initially contentious, the plan’s requirement for abuse claimants to forfeit potential direct claims against insurers was revised, with a structured release of $32 million set aside to address any direct claims, contingent on the number of claimants agreeing to the terms.
The successful confirmation of this secondarily tailored plan, which involved incorporating provisions to address direct claims separately, showcased a cooperative settlement approach that could serve as a model for other mass tort cases in the post-Purdue legal landscape.
This case not only illustrates the complexities and nuances of bankruptcy law as it pertains to non-debtors but also underscores the judicial system’s adaptability in finding equitable solutions for all parties involved, particularly in cases where personal trauma and systemic responsibilities intersect.
Disclaimer: This article is a product of artificial intelligence by OpenAI. The people, facts, circumstances, and narrative conveyed may be inaccurate. For corrections, retractions, or to request article removal, please email [email protected].