670 B.R. 813
Bankr. W.D.N.Y.2025Background
- The Diocese of Buffalo received a donation of land and raised substantial funds in 1959 to build a seminary dedicated to clergy education.
- The seminary, constructed with both solicited donations (targeted for seminary use) and general diocesan funds, operated from 1961 to 2021.
- The Diocese entered Chapter 11 bankruptcy in 2020 and ended subsidies to the seminary, leading to its closure.
- In 2024-25, the Diocese sold the seminary property for $4.2 million, with proceeds placed in a segregated account pending court determination of their permissible use.
- The Diocese sought court approval to use sale proceeds to help fund a settlement under its reorganization plan.
- No party opposed the motion, but the court assessed restrictions under New York law, specifically the cy pres doctrine and related trust principles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are sale proceeds subject to cy pres? | Proceeds are unrestricted, not a trust | N/A (No opposition) | Most proceeds are restricted for donor's original intent |
| Can restricted funds be used for settlement? | Diocese can use sale funds for any estate purpose | N/A | Restricted portion cannot be used for unrelated purposes |
| How to allocate proceeds between restricted and unrestricted sources? | All proceeds are estate property | N/A | Proceeds split pro-rata: 64.68% restricted, 35.32% unrestricted |
| Effect of technical trust principles | Not a technical trust, N.Y. law doesn't bind | N/A | Implied trust by law applies donor intent, restricts use |
Key Cases Cited
- Saint Joseph’s Hospital v. Bennett, 281 N.Y. 115 (N.Y. 1939) (religious corporations may not divert donations from donor-specified purposes; key foundation for N.Y. cy pres doctrine)
- Lefkowitz v. Lebensfeld, 68 A.D.2d 488 (N.Y. App. Div. 1979) (cy pres applies when a specific charitable purpose is stated and becomes impracticable)