In re Archdiocese of Saint Paul & Minneapolis

• Decision Date: 28 December 2017
• Docket Number: BKY 15–30125
• Parties: IN RE: The ARCHDIOCESE OF SAINT PAUL AND MINNEAPOLIS, Debtor.
• Court: U.S. Bankruptcy Court — District of Minnesota

579 B.R. 188

IN RE: The ARCHDIOCESE OF SAINT PAUL AND MINNEAPOLIS, Debtor.

BKY 15–30125

United States Bankruptcy Court, D. Minnesota.

Signed December 28, 2017

Richard D. Anderson, Benjamin Gurstelle, Bryce D. Jasper, John R. McDonald, Charles B. Rogers, Aaron G. Thomas, Briggs and Morgan P.A., Charles E. Nelson, Lindquist & Vennum LLP, Minneapolis, MN, for Debtor.

Phillip J. Ashfield, Edwin H. Caldie, Benjamin J. Court, Robert T. Kugler, Brittany Michael, Stinson Leonard Street, Dennis O'Brien, Manty and Associates, Minneapolis, MN, Scott C. Hecht, Stinson Leonard Street, Kansas City, MO, for Creditor Committee.

ORDER DENYING CONFIRMATION OF THE COMMITTEE OF UNSECURED CREDITORS' PLAN DATED AND FILED ON DECEMBER 19, 2016.

ROBERT J. KRESSEL, UNITED STATES BANKRUPTCY JUDGE

This case came on a hearing on August 29, 2017 on legal objections¹ to the second amended plan filed by the committee of unsecured creditors. Appearances were noted on the record.

For reasons stated below, confirmation of the committee's plan is denied.

1. The High School Campuses

North American Banking Company and Bremer Bank make similar and legally identical objections to confirmation of the committee's plan. The debtor owns the properties upon which Totino–Grace High School and Benilde–St. Margaret's High School are located. Both properties are subjected to long term leases with the respective high schools. Both high schools have loans which are secured by mortgages on the properties owned by the debtor. While the debtor is not liable for the mortgage debt, since the creditors' claims are secured by properties of the debtor, both have allowable claims. 11 U.S.C. § 502(a). Since their claims are secured by property of the estate, the claims are secured. 11 U.S.C. § 506(a)(1). Since the committee's plan makes no provision for these secured claims, its plan may not be confirmed and the objections of North American Banking Company and Bremer Bank are sustained.

2. Contribution Claims of the Parishes

The parishes argue that the committee's plan improperly discharges their indemnification and contribution claims. The committee's plan provides that the parishes' contribution claims are disallowed and discharged.

The parishes filed proofs of claims that are based on, among other things, indemnification and contribution. The proofs of claims state:

"[T]o the extent that claims have been, or will in the future be, asserted against the creditor for damages related to sexual abuse claims against clergy assigned to the creditor by the debtor, creditor asserts claims for indemnification and/or contribution against the debtor. Creditor's claims include, but are not limited to, reimbursement for the full amount of any damages incurred by the creditor as a result of the sexual abuse claims, as well as any attorneys' fees and costs incurred by the creditor in defending against such claims."

The parishes assert that under Minnesota law, because they may be subjected to common liability in the tort actions with the debtor, they hold rights to contribution against the debtor. They argue that this right arises when they pay more than their share of the common obligation to the tort claimants.

The Bankruptcy Code requires that a claim be disallowed when it is a claim for indemnification and contribution of an entity that is liable with the debtor and such claim is contingent as of the time of its allowance or disallowance. 11 U.S.C. § 502(e)(1)(B). The parishes assert indemnification and contribution claims based on their potential joint liability with the debtor for sexual abuse claims. The expansive definition of a claim under section 101(5) certainly encompasses tort claims, regardless of whether they are contingent or unliquidated. Matter of Baldwin–United Corp., 55 B.R. 885, 891 (Bankr. S. D. Ohio 1985). The parishes hold claims that are contingent as well as disputed and unliquidated. The parishes' indemnification and contribution claims are subject to disallowance.

This interpretation is consistent with the Congressional policy that underlie the Bankruptcy Code; "the bankrupt's (sic) estate should not be burdened by estimated claims contingent in nature. Rather, the debtor should be expeditiously rehabilitated and reorganized, thereby providing the bankrupt (sic) a fresh start, while simultaneously according fair treatment to creditors by paying ascertainable claims as quickly as possible." The Charter Co. v. Independent Petrochemical Corp. , (In re The Charter co. ), 862 F.2d 1500, 1502 (11th Cir. 1989).

While the committee seems to assume that the parishes' claims have been disallowed, section 502(a) provides that a claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). There have been no objections filed to the parishes' claims. The parishes hold allowed claims.

The parties disagree on whether the parishes' claims can be discharged. The parishes argue that contribution claims under Minnesota law do not arise until the person entitled to the contribution has sustained damage by paying more than his fair share of the joint obligation. They argue that because they have not paid their share of the joint obligation, their claims of contribution have not accrued or matured yet. Therefore, it is not a pre-petition debt. They argue, for that reason, section 1141(d)(1) does not discharge their claims because their claims are not based on pre-petition debts and also not among those debts specifically listed in section 1141(d)(1)(A).

Under the Bankruptcy Code, a claim is defined under section 101(5) as a "right to payment, whether or not such right is ... contingent, matured, unmatured..." A claim is considered to arise at "the time when acts giving rise to the alleged liability were performed." Lovett v. Honeywell, Inc. (In re Transportation Systems Intern. ), 110 B.R. 888, 894 (D. Minn. 1990) Aff'd, 930 F.2d 625 (8th Cir. 1991) (the court rejected the Third Circuit's holding in Avellino & Bienes v. M. Frenville Co. Inc. et al. (In re M. Frenville Co., Inc. ), 744 F.2d 332 (3rd Cir. 1984), where the Third Circuit court held a claim would not arise until the creditor's right to payment of the claim arose). The Third Circuit later reversed its position in Jeld–Men, Inc. v. Gordon Van Brunt, et al. (In re Grossman's Inc. ), holding that a claim arises when an individual is exposed prepetition to a product or other conduct giving rise to an injury. 607 F.3d 114 (3rd Cir. 2010).

The parishes' argument that their contribution claims did not arise pre-petition because it did not accrue or mature until they sustained damage by paying more than their fair share of joint obligations is simply wrong. The contribution claims arose pre-petition at the time the acts giving rise to the alleged liability occurred, when the sexual abuses occurred.

In fact, consistent with the Code, under Minnesota law, "common liability is created at the instant the tort is committed." Bloomgren v. Marshall Mgmt. Services, Inc. , 483 N.W.2d 504, 506 (Minn. Ct. App. 1992) (Citing White v. Johnson, 272 Minn. 363, 137 N.W.2d 674, 679 (1965), overruled in part by Tolbert v. Gerber Industries, Inc., 255 N.W.2d 362, 368 n. 11 (Minn. 1977) ). The parishes' common liability with the debtor, the source for their contribution claims, arose pre-petition, when the sexual abuses occurred. The parishes' contingent claims whether matured or not are pre-petition rights to payment under the Code. Olin Corp. v. Riverwood International Corp. (In re Manville Forest Products Corp.), 209 F.3d 125, 128 (2nd Cir. 2000). The fact that the parties lack competent knowledge about the scope of its potential liability does not place that liability outside of the definition of a "claim," that is what made the claim contingent. Id.

Additionally, the Title VII claim cases the parishes rely on are not helpful to their argument. Courts have held that for the purpose of determining whether an employee's claim is pre- or post-petition, Title VII claims arise at the time of termination, not at the time the employee received a right to sue letter from the appropriate administrative agency. McSherry v. Trans World Airlines, Inc. , 81 F.3d 739, 740 (8th Cir, 1996).

An entry of a confirmation order discharges all debts arising prior to the date of confirmation. 11 U.S.C. § 1141(d)(1)(A) ; U.S. Commodity Futures Trading Comm'n v. NRG Energy, Inc., 457 F.3d 776, 779 (8th Cir.2006). The parish contribution claims arose before the date of confirmation. Therefore, section 1141 properly discharges the parishes' indemnification and contribution claims. Olin Corp. v. Riverwood International Corp. , 209 F.3d at 129. Under the committee's plan, the debtor would not receive a discharge for many years after confirmation.

However, section 502(e) also provides that a claim for reimbursement or contribution that becomes fixed after the commencement of the case shall be determined, and shall be allowed or disallowed the same as if such claim had become fixed before the date of the filing of the petition. 11 U.S.C. § 502(e)(2). Although I agree with the creditors' committee that the parishes' indemnification and contribution claims are subject to discharge, to the extent that the parishes eventually make payments to the tort creditors, their claims may be allowed. Therefore, if the tort creditors sue the parishes for the sexual abuse claims and are successful, the parishes' claims against the debtor will mature and the parishes will have the right to have their contribution claims allowed. The objections of the parishes are sustained. The committee's plan fails to provide for these claims and cannot be confirmed.

3. The Parishes' Interest in the Debtors' Insurance Policies

The parishes assert that their rights to indemnification and contribution against the debtor are covered by the debtor's insurance policies. They argue that the committee's plan proposes to impair their interest in the policies and transfer all of the debtor's interest...