In re: The Roman Catholic Bishop of Oakland Insurance Adversary Proceeding…

Background

The Roman Catholic Bishop of Oakland filed a voluntary Chapter 11 bankruptcy petition in the Northern District of California Bankruptcy Court on May 8, 2023. The Bishop was facing more than 300 state-court actions alleging negligent supervision and negligent hiring of clerical and ministerial staff who perpetrated sexual abuse against certain claimants.

The Bishop later filed an adversary proceeding against several insurers, identified collectively as the Underwriters, and the California Insurance Guarantee Association. The action sought a declaration about the Underwriters’ obligation to provide coverage for the Bishop’s defense of the state-court actions, as well as a declaration concerning CIGA’s statutory obligations. The claims were based on state law.

The defendants moved to dismiss and demanded a jury trial. The Bankruptcy Court had granted an earlier motion to dismiss, and briefing on another round of motions to dismiss was pending when the defendants moved to withdraw the reference. The Bishop filed statements of non-opposition to the motions.

Legal standard

Federal district courts have original but not exclusive jurisdiction over bankruptcy proceedings. A district court may withdraw a bankruptcy proceeding’s reference to the bankruptcy court either mandatorily or permissively. The defendants sought permissive withdrawal, which requires a showing of cause. Relevant factors include judicial efficiency, delay and costs, uniformity of bankruptcy administration, and the prevention of forum shopping.

Court’s analysis

The court concluded that the coverage claims were exclusively non-core. Non-core claims are matters that do not depend on bankruptcy law for their existence and could proceed in another court. The court relied on the claims’ state-law basis and their relationship to prepetition insurance contracts.

Because the defendants demanded a jury trial and did not consent to bankruptcy-court jurisdiction, the Bankruptcy Court could not conduct a jury trial on the non-core claims. If the reference remained in place, the Bankruptcy Court could hear the claims and propose findings and conclusions, but the district court would ultimately have to review disputed matters and enter the final judgment. The court concluded that withdrawal would avoid an unnecessary layer of review and promote judicial efficiency.

The court also found that withdrawal would reduce delay and added costs. It found no forum-shopping concern because the district court would ultimately have to address the claims either initially or through review of the Bankruptcy Court’s proposed findings.

Disposition

Judge Jacquelyn Scott Corley granted the motions to withdraw the reference. The court set an initial case-management conference for April 18, 2024, and required a joint case-management conference statement by April 11, 2024. The order transferred the proceeding to the district court for further handling but did not resolve the parties’ insurance-coverage dispute.