Diocese of Rockville judge denies attempt to stay litigation

Chicago, June 2 – The Roman Catholic Diocese of Rockville Centre, New York attempt to stay litigation against parishes and other affiliates in state court actions was denied by judge Martin Glenn in the U.S. Bankruptcy Court for the Southern District of New York, according to a press release.

After a two-day evidentiary hearing, the court acknowledged the harm to survivors caused by delaying their rights to pursue their claims against the parishes, which are separate corporations that have not filed for bankruptcy and held the diocese could no longer shield the parishes from the survivors' claims.

The diocese argued the automatic stay applied to the parishes, and sought a preliminary injunction under bankruptcy rule 7065.

The court found that while actions taken by the parishes to access the proceeds of shared insurance could violate the stay, the survivors' actions against the parishes do not violate the automatic stay because they are not actions to obtain insurance proceeds that are property of the estate.

The court suggested that the parishes may wish to file a motion for relief from stay to access insurance to defend against the survivors' lawsuits.

In declining the diocese's request for a preliminary injunction, the court expressed skepticism regarding the diocese's likelihood of confirming a plan and ultimately concluded that this factor was "neutral at best for the debtor."

The court rejected the diocese's arguments that (i) an injunction should be issued because the parishes shared insurance policies with the diocese because it had already determined that the proceeds of these shared insurance policies were protected by the automatic stay; and (ii) the litigation against the parishes put it at risk of claims for indemnity and contribution, piecemeal litigation, inconsistent judgments, and collateral estoppel and res judicata.

The Rockville Centre, N.Y.-based diocese filed bankruptcy on Oct. 1, 2020 under Chapter 11 case number 20-12345.

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