The Roman Catholic Diocese of Rockville Centre, New York

Background

The Roman Catholic Diocese of Rockville Centre, New York filed a petition seeking to transfer 224 state-court actions to the Southern District of New York. The actions seek personal-injury relief under New York’s Child Victims Act and were brought against non-Debtor parties, primarily parishes, schools, and other organizations affiliated with but legally distinct from the Diocese. Because the Diocese had a pending bankruptcy case, the petition was automatically referred to the Bankruptcy Court under 28 U.S.C. § 157(a) and the District Court’s standing order.

The Diocese immediately filed an ex parte letter motion—that is, a motion made without first giving the opposing party an opportunity to respond—arguing that the automatic referral was erroneous. On July 13, 2023, the District Court granted that motion and withdrew the reference. The Official Committee of Unsecured Creditors in the bankruptcy case later moved for reconsideration. The Diocese opposed reconsideration.

Reconsideration standard

The court explained that reconsideration is ordinarily available only when a party identifies an intervening change in controlling law, new evidence, or a clear error or manifest injustice. It is not ordinarily a way to relitigate issues, present new theories, or obtain a second hearing on the merits. The court also noted that reconsideration is discretionary.

Here, however, the Committee had not been given notice or a fair opportunity to respond to the Diocese’s ex parte motion. The court concluded that due process required reconsideration and therefore evaluated the referral issue as though it were before the court for the first time.

Referral and withdrawal analysis

The court distinguished between mandatory and permissive withdrawal of a bankruptcy-court reference. Mandatory withdrawal applies when resolving the proceeding requires consideration of both bankruptcy law and other federal laws regulating organizations or activities affecting interstate commerce. The court found that the petition did not implicate such laws, and the parties agreed that mandatory withdrawal did not apply.

Permissive withdrawal allows a district court to withdraw a bankruptcy-court reference for cause. Relevant considerations include whether the matter is central or peripheral to the bankruptcy case, whether it involves legal or equitable issues, efficiency, avoiding forum shopping, and uniform administration of bankruptcy law. The Diocese, as the party seeking withdrawal, had to show cause.

The court found that cause for withdrawal had not been shown. The Bankruptcy Court was familiar with the underlying bankruptcy case and was better positioned to evaluate the petition in the first instance. Referral would promote efficiency and consistency because the petition raised a relatively novel question: whether 28 U.S.C. § 157(b)(5), a bankruptcy venue provision, could be used to transfer state-court personal-injury actions against parties that were not debtors in the bankruptcy case. The Bankruptcy Court had also decided related motions, including that the automatic bankruptcy stay did not cover the state-court actions against non-Debtor parties.

The court rejected the Diocese’s reliance on cases involving personal-injury claims against debtors. It explained that those cases did not address the threshold question presented here—whether Section 157(b)(5) could be used to transfer personal-injury actions against non-Debtor parties from state court.

Disposition

The court granted the Committee’s motion for reconsideration. It struck the July 13, 2023 order withdrawing the reference and referred the Diocese’s petition to the Bankruptcy Court for a report and recommendation. The parties were ordered to file a joint letter updating the District Court on the bankruptcy proceeding by April 12, 2024, and every 60 days afterward. The Clerk was directed to close the motion at Dkt. No. 32.