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Novel Issues of Chapter 11 Mass Tort and Complex Claims Cases Impact Claims Against Unrelated Debtors
Chapter 11 cases involving mass tort and complex personal injury claims often require the resolution of novel legal issues that stretch the bounds of existing precedent. As these cases evolve, they can also impact claims against other debtors unrelated to the case at hand through court-approved injunctions, releases or settlements. This is precisely the situation that presented itself in the Chapter 11 case involving the Roman Catholic Diocese of Rockville Centre. See In re Roman Catholic Diocese of Rockville Center, No. 20-12345(MG), 2023 Lexis 1751, at *6 (Bankr. S.D.N.Y. July 13, 2023). On July 13, following a series of responses to claim objections made by the debtor in the Rockville Chapter 11, the U.S. Bankruptcy Court for the Southern District of New York sustained Rockville's claim objections relying upon third-party releases originally issued in the unrelated Boy Scouts of America (BSA) bankruptcy case.
The issues in Rockville stem from the joint voluntary Chapter 11 petitions filed by the BSA and Delaware BSA in 2020 to address the growing number of sexual abuse claims asserted against those organizations. The BSA reorganization plan, which was confirmed by the Bankruptcy Court and later by a U.S. district court, faces pending appeals in the U.S. Court of Appeals for the Third Circuit. The Third Circuit, however, has denied motions to stay the effectiveness of the BSA plan pending these appeals.
Some of the abuse claims asserted against Rockville implicate certain "participating chartered organizations," a class that Rockville opted into under the BSA plan. As a result of being classified as a participating chartered organization, Rockville also became a "limited protected party" under the BSA plan, which afforded it certain releases against BSA's creditors who might also be creditors of Rockville. Specifically, BSA creditors were enjoined from prosecuting any abuse claims arising after 1975 against limited protected parties. Of the roughly 30 claims in which Rockville is a co-defendant with BSA, nine alleged abuse occurred after 1975.
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