665 B.R. 198
Bankr. W.D.N.Y.2024Background
- The Diocese of Buffalo filed for Chapter 11 bankruptcy in February 2020 after more than 900 claims alleging sexual abuse were filed against it.
- Seventeen plaintiffs moved for relief from the automatic stay to allow their state court lawsuits to continue for the determination of liability and damages, but not for enforcement of judgment.
- The case has been in mediation since December 2021, with two mediators appointed so far, but no settlement or plan of reorganization has been reached after almost five years.
- Insurers requested discovery into potential attorney conflicts and sought enforcement of disclosure requirements under Bankruptcy Rule 2019, while the Diocese sought appointment of additional mediators instead of stay relief.
- The automatic stay has prevented plaintiffs from progressing with their claims, which allege tort liability often based on decades-old conduct by multiple related institutions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Relief from automatic stay for state court litigation | Stay should be lifted to liquidate claims and avoid loss of evidence due to delay | Further mediation is needed; more mediators should be appointed | Granted; stay lifted for liability/damages, but not enforcement |
| Appointment of additional mediators | Not directly addressed | Court should appoint two more mediators | Denied without prejudice; input from current mediators needed before new appointments |
| Bankruptcy Rule 2019 disclosures | Not at issue from movants | Insurers argue attorney disclosure required | Denied without prejudice; disclosure not required until a reorganization plan is proposed |
| Ethical conflicts from multiple claimants | No client standing for insurers to object | Insurers raise concerns about conflicts | Court found insurers lack standing; expects attorneys to comply with ethical obligations |
Key Cases Cited
- In re Sonnax Industries, Inc., 907 F.2d 1280 (2d Cir. 1990) (articulates the factors for determining relief from the automatic stay)
- In re Diocese of Buffalo, 634 B.R. 839 (Bankr. W.D.N.Y. 2021) (discusses complexities of abuse claims in bankruptcy mediation context)