In re Camden

• Docket Number: 20-21257 (JNP)
• Decision Date: 29 August 2023
• Parties: In re DIOCESE OF CAMDEN, NEW JERSEY, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

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In re DIOCESE OF CAMDEN, NEW JERSEY, Debtor.

No. 20-21257 (JNP)

United States Bankruptcy Court, D. New Jersey

August 29, 2023

Chapter 11

MEMORANDUM DECISION DENYING MOTION TO APPROVE SETTLEMENT

JERROLD N. POSLUSNY, JR. U.S. BANKRUPTCY COURT JUDGE

In January 2022, the Diocese of Camden, New Jersey (the "Debtor"), and certain insurers^[1]reached a settlement (as amended, the "Insurance Settlement"), and the Debtor filed a motion for approval of the Insurance Settlement (as amended, the "Insurance Motion"). The Official Committee of Tort Claimant Creditors (the "Committee") opposes the Insurance Motion, and eventually filed a motion seeking a directed verdict denying the Insurance Motion (the "Motion for Judgment"). The Motion for Judgment was not fully briefed until after a joint trial to consider the Insurance Motion and the Debtor's and the Committee's jointly proposed Eighth Amended Plan (which is the subject of a separate opinion issued contemporaneously with this decision). For the reasons discussed below, the Court will deny the Motion for Judgment, but will also deny the Insurance Motion.^[2]

Jurisdiction

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The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1), and the Standing Order of the United States District Court dated July 10,1984, as amended September 18, 2012. Venue is proper in this Court pursuant to 28 U.S.C. § 1408. Consideration of the motions constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (M), (N), and (O).

Background

The Debtor is an ecclesiastical district within the Catholic Church comprised of the southern six counties of New Jersey - Camden, Gloucester, Atlantic, Cape May, Cumberland, and Salem counties. PP-0266 ¶ 25. The Diocese encompasses approximately 480,000 Catholics across 62 Parishes. Id. ¶ 25,27, 55. There are four Missions and twenty-eight schools within the Debtor's district. Id., ¶¶ 58, 63-65. One of the missions and three of the high schools are affiliated with the Debtor but are separately incorporated. Id. ¶¶ 58, 65.

A. History of Abuse

In 2002 both civil and church authorities recognized that the historic abuse and exploitation of minor children by priests was a serious problem that needed to be addressed to prevent such conduct from happening in the future. PP-0266 ¶ 46. The Debtor took steps, including entering into compacts with county prosecutors and the New Jersey Attorney General (the "2002 Memorandum of Understanding"), requiring fingerprint-facilitated criminal history background checks for every adult employee having regular contact with minors, and implementing zero tolerance policies regarding sexual abuse. Id. ¶ 7. In accordance with the 2002 Memorandum of Understanding, the Debtor reports every allegation of abuse of a minor by Diocesan priests to law enforcement authorities. Id. ¶ 48. The Debtor publicly released the names of 56 priests (which was reduced to 55 priests after further review) and one deacon of the Debtor who were credibly accused of abusing minors prior to the Petition Date. Id. ¶ 33. The Debtor offers therapeutic care to anyone who comes forward as a survivor of sexual abuse, amounting to an initial twenty-five counseling

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sessions per survivor with the option to request additional sessions after a panel of psychologists reviews the survivor's case to determine if more sessions are warranted. Nov. 9 Transcript, 63:21-64:11. The Debtor has paid nearly SI million to provide these services to date. Id. at 64:1-14.

From 1990 to 2019, the Debtor reached 99 settlements with abuse survivors totaling approximately $10,12 million. PP-0266 ¶ 36.

In December 2019, the State of New Jersey passed the New Jersey Child Victims Act (the "CVA"), which reopened the statute of limitations related to claims of child sexual abuse, allowing previously time-barred claims of this nature to be brought for a two-year period from the passage of the CVA, through November 30, 2021, as well as expanding the statute of limitations for any such claims which were not time barred as of the date of enactment. Oct: 6 pm Transcript, 67-68; NJ.S.A. §2A:14-2a.

B. The IVCP

Prior to the passage of the CVA, on June 15,2019, the Debtor along with the other dioceses in New Jersey, established the Independent Victims Compensation Program ("IVCP"), a voluntary out of court settlement program in which the Debtor participated through July 31, 2020, to settle claims of this nature. LMI-1056 ("Eighth Amended Disclosure Statement") at 36. The IVCP was administered by two independent experts, Kenneth Feinberg and Camille Biros, (collectively the "IVCP Administrators"), who would review and evaluate claims using the following chart to determine compensation under the IVCP:

IVCP SETTLEMENT COMPENSATION SUMMARY
Category	Description of Abuse	Range of Compensation
Category I	Sex talk, no physical touching	$0 - $25,000
Category II	Nudity/Pornography - no physical touching	$25,000 - $50,000
Category III	Fondling over clothes	$50,000 - $100,000
Category IV	Fondling under clothes	$100,000 - $150,000
Category V	Masturbation	$150,000 - $200,000
Category VI	Oral sex	$200,000 - $350,000
Category VII	Penetration	$350,000 - $500000

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LMI-1056, at 80; PP-0065-A. Claims were reviewed, and the IVCP Administrators met with the claimants individually, making adjustments to the claim amounts as appropriate. Oct, 17 pm Transcript. 67:9-11. The Debtor resolved a total of 71 claims through the IVCP, with an average settlement amount of $114,000 for atotal of $8,102,500. LMI-1056, at 36. Approximately fourteen of the 71 claims were resolved after the CVA became effective, and there is no evidence as to whether any of the settling claimants were represented by counsel, Oct. 17 am Transcript (corrected), 106:25-107:3. These settlements were entered into and paid without the Debtor seeking any compensation from its Insurers. Oct. 17 pm Transcript, 101:17-20.

C. The Insurance Policies

Since at least 1969, the Debtor has maintained an insurance program for itself, parishes, schools, cemeteries, and other Catholic entities located within the Diocese ("OCE").^[3] JX-0001-0047; see also Dkt. No. 1087 ¶ 8. This included maintaining multiple liability insurance policies (the "Policies") issued by the Insurers, as well as its own self-insured retentions ("SIRs"). Id. Although these policies have different terms and cover different time frames, most of them require the Debtor to maintain SIRs. Oct. 7 Transcript (corrected). 23:22-24; 33:13-18. Some of the Policies contain clauses which permit or require the Insurers to be involved in the defense of any claim against the Debtor that implicates the Policies. Id. 158:10-15.

The Policies are property of the Estate and therefore are subject to the exclusive core jurisdiction of this Court. The sale of the Policies to fund the Plan in this case is within the Court's core jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(N). The Court has jurisdiction over the interests in the Policies (including the Channeled Claims against the Diocese Parties) because the Policies are being sold. 11 U.S.C. §§ 363(e) and (f), 1123(a)(5)(D) and 1123(b)(4) and (5); 28 U.S.C. § 157(b)(2)(L),(N)and(0).

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D. The Bankruptcy

The Debtor filed for protection under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on October 1, 2020 (the "Petition Date"), due in-part, to potential liability it faced for claims from sexual abuse survivors (the "Survivor Claims"). LMI-0013, at 1. A total of 324 Survivor Claims were filed in the Debtor's case (the "Bankruptcy Case"). Oct. 17 pm Transcript, 77:7-9. Shortly after the Petition Date, the Debtor filed an adversary proceeding naming the Insurers as defendants (the "Insurance Action"), seeking declaratory relief including a determination that the Policies imposed a contractual obligation for the Insurers to provide coverage for any Survivor Claims. Adv. Pro. No. 20-1573, Dkt. No. 1. An order appointing the Honorable Jose L. Linares (Ret.) as mediator and referring the Bankruptcy Case and related adversary proceedings to global mediation was entered on May 20, 2021. Dkt. No. 640. There were many mediation sessions held with the Insurers, the Committee, and the Debtor, over several months until the Debtor and the Insurers reached the Insurance Settlement. The Debtor filed the Insurance Motion on January 5, 2022. Dkt. No. 1087 at 9. Later, the Debtor filed the supplement to the Insurance Motion, to reflect that the Insurers had increased the settlement amount to $30 million, making the entire amount to be paid towards Survivor Claims $90 million. Dkt. No. 1144.

E. The Insurance Settlement

The Insurance Motion was filed pursuant to Federal Rule of Bankruptcy Procedure ("Rule") 9019 and section 363(f) the Bankruptcy Code seeking approval of the Insurance Settlement and the sale the Policies back to the Insurers. Dkt. Nos. 1087 and 1144, The Insurance Settlement is between the Debtor and the OCE on one hand and the Insurers on the other. LMI-0023. The Insurance Settlement provides that the Insurers will pay $30 million (the "Settlement Amount") which would be paid to a trust (the "Plan Trust"), that was to be established as part of a Chapter 11 plan of reorganization (the "Fifth Amended Plan") to satisfy the Survivor Claims. Id.;

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LMI-0013. Half of the Settlement Amount is treated as the purchase price to allow the Insurers to repurchase the Policies from the Debtor as well as any rights in the Policies held by OCE. See id at 5, 8, 18-20, 22. The other half is treated as consideration for a channeling injunction, which would funnel any future claims related to abuse to the Plan Trust and an...