The Diocese of Buffalo Bankruptcy: Preliminary Injunction Insights

On February 28, 2020, the Diocese of Buffalo filed for Chapter 11 bankruptcy protection. As part of the bankruptcy proceedings, the Diocese sought to enjoin the prosecution of state court lawsuits involving allegations of sexual abuse. The lawsuits targeted not only the Diocese but also its affiliated parishes, schools, and other Catholic entities. These lawsuits amounted to nearly 800 claims, with many abuse survivors filing for damages against both the Diocese and its affiliates.

The Diocese is affiliated with 161 active parishes and has identified 211 closed or merged parishes. Some of these parishes were also named in lawsuits regarding sexual abuse allegations. The Diocese sought to protect these parishes and affiliated entities from litigation during the bankruptcy process.

Initial Legal Actions

On May 2, 2020, the Diocese initiated an adversary proceeding to stop these lawsuits while the bankruptcy case was ongoing. The court had previously granted temporary injunctive relief on six separate occasions. These stays allowed the Diocese to avoid further disruption while working on a potential reorganization plan. In July 2023, the court's most recent stay expired, prompting the Diocese to file a new motion requesting an extension of the stay on state court actions until April 15, 2024.

The Diocese argued that allowing the state court lawsuits to proceed would disrupt mediation efforts, drain financial resources, and impair the ability of the Diocese and its affiliates to contribute to a survivor trust, which would be central to any bankruptcy reorganization plan.

Opposition from the Creditors’ Committee

The Official Committee of Unsecured Creditors, which represents many of the sexual abuse claimants, opposed the Diocese's motion for a broad injunction. While the Committee agreed that a stay might be appropriate for lawsuits related to incidents of abuse after July 1, 1986—where insurance policies or Diocesan funds could be affected—it opposed a blanket stay on all lawsuits. The Committee argued that the Diocese did not meet the legal requirements for such a sweeping injunction and that certain claims against parishes did not impact the Diocese’s assets or insurance.

The Committee asserted that state court lawsuits should be allowed to proceed, except where there was a direct impact on shared insurance or Diocesan resources. They also expressed concerns that the automatic stay under bankruptcy law did not apply to lawsuits where the Diocese was not a named defendant.

Court’s Consideration

Judge Carl L. Bucki, presiding over the case, weighed these arguments and examined the legal precedent concerning the automatic stay and injunctive relief. The court had previously established that insurance policies held by the Diocese were part of the bankruptcy estate, meaning that lawsuits affecting these policies could be stayed. However, claims against parishes without such ties to Diocesan insurance or property would not be automatically stayed.

The Diocese sought a broader stay under 11 U.S.C. § 105(a), a provision allowing the court to issue orders necessary to carry out the provisions of the Bankruptcy Code. This provision could include an injunction if it facilitated the development of a reorganization plan involving a global settlement of abuse claims.

Impact of Purdue Pharma Appeal

A significant factor in the case was the pending U.S. Supreme Court decision regarding *In re Purdue Pharma L.P.*, a case that also dealt with non-consensual releases of third-party claims against non-debtors in a bankruptcy plan. The Diocese's request for an injunction depended, in part, on the outcome of that case, as it could determine whether a reorganization plan could include similar provisions.

If the Supreme Court were to reverse the ruling in *Purdue Pharma*, the Diocese’s ability to secure a long-term stay of litigation could be jeopardized. This uncertainty affected the court's analysis of whether to grant the temporary injunction requested by the Diocese.

Court’s Decision

Given the ongoing uncertainty about the legal standards that would apply to the Diocese’s reorganization plan, the court decided to grant a temporary injunction. This injunction would remain in effect until the earlier of April 15, 2024, or twenty days after the Supreme Court’s decision in *Purdue Pharma*. The court emphasized that this pause was necessary to allow all parties to proceed with a clearer understanding of the legal landscape.

The injunction temporarily halted all state court lawsuits against the Diocese’s affiliates while mediation efforts continued. The court also encouraged the parties to work towards a mediated settlement while awaiting the Supreme Court's ruling.