INTERSTATE FIRE & CASUALTY COMPANY AND NATIONAL SURETY CORPORATION, et al. v. THE ROMAN CATHOLIC BISHOP OF SACRAMENTO

• Court: District Court, E.D. California
• Decided: February 24, 2026
• Docket: 2:25-cv-02262
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 INTERSTATE FIRE & CASUALTY No. 2:25-cv-02262 WBS COMPANY AND NATIONAL SURETY (Lead Case) 13 CORPORATION, et al., 2:25-cv-02288 WBS 14 Appellants,

15 v. MEMORANDUM AND ORDER RE: 16 THE ROMAN CATHOLIC BISHOP OF APPELLANTS’ APPEAL OF THE SACRAMENTO, BANKRUPTCY COURT’S ORDER 17 Appellee. 18

19 ----oo0oo---- 20 Appellants Interstate Fire & Casualty Company and 21 Certain Underwriters at Lloyd’s, London, and Certain London 22 Market Insurance Companies (together, “Insurers”) have appealed 23 the bankruptcy court’s order modifying an automatic stay in 24 connection with the bankruptcy of appellee, the Roman Catholic 25 Bishop of Sacramento (“RCBS”). (Docket Nos. 60, 62.) RCBS and 26 the Committee of Unsecured Creditors (“the Committee”) have filed 27 28 1 opposing briefs. (Docket Nos. 64, 67.)1 2 The court previously denied the Committee’s motion to 3 dismiss Insurers’ appeal, concluding that Insurers were “persons 4 aggrieved” for purposes of bankruptcy appellate standing. 5 (Docket No. 51.) The court then set a briefing schedule. 6 (Docket No. 56.) Insurers timely submitted briefs, in which they 7 argue that the bankruptcy court’s Order is deficient with respect 8 to factual findings, legal analysis, and adequate weighing of 9 their interests. (See Docket Nos. 64, 67.) 10 I. RCBS’ Bankruptcy Proceedings 11 This bankruptcy proceeding is one of several involving 12 Roman Catholic Dioceses in Northern California following passage 13 of the California Victims Act, A.B. 218, which allows previously 14 time-barred sexual assault claims to proceed in state court. 15 (Docket No. 60 at 13); see also Century Indemnity Co. v. Roman 16 Catholic Archbishop of San Francisco, No. 25-cv-08563 WHO, 2025 17 WL 3124083 (N.D. Cal. Nov. 7, 2025) (discussing the circumstances 18 of a similar Diocese bankruptcy case). In the wake of that 19 legislation, over 200 tort actions were brought against RCBS and 20 its affiliates in state court. (Id.) RCBS filed for bankruptcy 21 in April 2024, and the Committee -- comprised of nine survivors 22 representing the interests of the hundreds of other tort 23 claimants -- was formed “to reach a global settlement with the 24 Diocese in the form of a plan of reorganization that can be 25 confirmed by the Bankruptcy Court as soon as possible.” (Docket 26 1 Pursuant to Local Rule 230, because the court concludes 27 it would not benefit from oral argument on this appeal, the matter is decided on the papers, and the scheduled March 2, 2026 28 hearing on the appeal is vacated. 1 No. 67 at 16.) 2 Pursuant to Section 362(a)(1) of the Bankruptcy Code, 3 “a wide-ranging stay on collection and enforcement activities 4 against the debtor” was automatically imposed on the pending tort 5 actions. In re Budd, No. BAP 11-cc-1015 MKKID, 2011 WL 4485190, 6 at *2 (B.A.P. 9th Cir. July 11, 2011). RCBS then initiated an 7 adversary proceeding against approximately 229 plaintiffs, in 8 which it moved to extend the effects of the automatic stay to its 9 affiliates. (Docket No. 60 at 16.) Many objections were filed 10 by the Committee and survivor claimants; however, on the brink of 11 the motion hearing, the parties reached an agreement in the form 12 of a stipulation allowing, among other things, four cases to 13 proceed in state court (“the Released State Court Actions”). 14 (Id. at 17.) The stipulation was approved in the adversary 15 proceeding, whereafter RCBS moved to have the same stipulation 16 approved in the main bankruptcy proceeding. (Id. at 18-19.) 17 Insurers objected, and a hearing was held in which the bankruptcy 18 judge orally approved the stipulation. (Id. at 19-21) The 19 bankruptcy court then issued an Order approving the stipulation 20 modifying the automatic stay. (Id.) 21 In its Order, the bankruptcy court determined, based on 22 “the legal and factual bases set forth in the Motion” and “all 23 the proceedings had before the Court,” that “just cause” existed 24 for the stay modification. (Docket No. 61 at 223.) The court 25 also found that “the relief requested . . . [was] in the best 26 interests of the Debtor, its estate, creditors, and all parties 27 in interest.” (Id.) 28 Insurers appeal the Order on three grounds: (1) the 1 Order failed to discuss and apply the appropriate legal standard; 2 (2) the Order failed to weigh evidence or make explicit findings 3 of fact; and (3) the Order did not sufficiently weigh Insurers’ 4 interests. 5 The bankruptcy court’s decision to grant relief from an 6 automatic stay is reviewed for an abuse of discretion. See In re 7 Budd, No. BAP 11-cc-1015 MKKID, 2011 WL 4485190, at *2 (B.A.P. 8 9th Cir. July 11, 2011) (“We review an order granting relief from 9 stay for abuse of discretion.”); In re Merriman, 616 B.R. 381, 10 387 (B.A.P. 9th Cir. 2020) (same); In re Kronemyer, 405 B.R. 915, 11 919 (B.A.P. 9th Cir. 2009) (same). “A bankruptcy court abuses 12 its discretion if its decision is based on the wrong legal 13 standard or its findings of fact were illogical, implausible, or 14 without support on the record.” In re Merriman, 616 B.R. at 387. 15 A district court “may affirm the bankruptcy court’s 16 order on any basis supported by the record.” In re Wojcik, 560 17 B.R. 763, 768 (9th Cir. 2016). 18 II. Review of Bankruptcy Court Order 19 A bankruptcy court may grant relief from an automatic 20 stay under Section 362(d)(1) “upon a showing of cause.” In re 21 Merriman, 616 B.R. at 387 (citing 11 U.S.C. § 362(d)(1)). 22 “Cause” has been recognized as a “broad and flexible concept,” 23 and its definition is determined on a case-by-case basis. In re 24 Everton Aloysius Sterling, 543 B.R. 385, 393 (Bankr. S.D.N.Y. 25 2015); see also In re Merriman, 616 B.R. at 394 (“Congress left . 26 . . the concept of ‘cause’ purposefully undefined and flexible.” 27 (citation modified)). 28 a. Applicable Legal Standard 1 The Insurers argue at the threshold of their appeal 2 that the Order “failed to identify or apply the correct legal 3 rules governing the relief it granted.” (Docket No. 60 at 26.) 4 They contend that assessment of cause for stay relief “involves, 5 typically, an evaluation of certain factors, called the Curtis 6 factors,” which were not explicitly discussed by the bankruptcy 7 court. (Id. (citing In re Curtis, 40 B.R. 795, 799-800 (Bankr. 8 D. Utah 1984).) Insurers further argue that the Order should 9 have assessed the stay modification under Federal Rule of 10 Bankruptcy 9019. (Id.) Neither argument is persuasive. 11 The Curtis factors -- as Insurers acknowledge with the 12 qualifier “typically” -- have been recognized as discretionary 13 considerations a bankruptcy court may employ when determining 14 cause. See In re Plumberex Specialty Products, Inc., 311 B.R. 15 551, 559 (Bkrtcy. C.D. Cal. 2004) (describing the Curtis factors 16 “as issues a bankruptcy court might weigh in determining whether 17 to lift the stay to permit pending litigation to continue” 18 (emphasis added)); In re Fjeldsted, 293 B.R. 12, 24-25 (9th Cir. 19 BAP 2003) (“[The Curtis factors] may be considered as an aid to 20 the court in weighing the equities.” (emphasis added)); In re 21 Altman, 2018 WL 3133164, at *7 (9th Cir. B.A.P. 2018) (“Although 22 the [Curtis] factors may be considered by the bankruptcy court, 23 ‘cause’ is a generic concept without a specific definition.”). 24 Insurers cite no authority requiring explicit articulation and 25 consideration of the Curtis factors in an order granting stay 26 relief, and the court is not convinced that failure to do so 27 constitutes an abuse of discretion. Cf. In re Roger, 539 B.R. 28 837, 845 (C.D. Cal. 2015) (“[S]ome cases involving the automatic 1 stay provision do not mention the Curtis factors at all.”). 2 The court further notes that RCBS’ motion in the 3 bankruptcy court, which was incorporated into the court’s Order, 4 references the Curtis factors in its discussion of the basis for 5 requested relief. (Docket No. 61 at 14-15 n.2.) And as set 6 forth below, the tenth factor, “the interest of judicial economy 7 and the expeditious and economical determination of litigation 8 for the parties,” weighs heavily in favor of finding cause in 9 this case, which has been recognized as sufficient for purposes 10 of granting stay relief. See In re Merriman, 616 B.R. at 389 11 (“[The appellate panel] based its affirmance of the bankruptcy 12 court’s order primarily on the grounds that judicial economy 13 weighed in favor of stay relief.”); In re Sterling, 2018 WL 14 313085, at *5 (Bankr. S.D.N.Y. Jan. 5, 2018) (“Most importantly, 15 the interests of judicial economy will be met by granting relief 16 from the stay and moving forward in the state court.”). 17 Insurers’ argument that Bankruptcy Rule 9019 applies to 18 the Order is also unavailing. That rule provides that “[o]n 19 motion by the trustee and after notice and hearing, the court may 20 approve a compromise or settlement.” Fed. R. Bankr. P. 9019(a). 21 Nothing in the statute, or any of Insurers’ cited cases, suggests 22 that “compromise or settlement” includes motions for stay relief, 23 which are specifically discussed in Rule 4001. Fed. R. Bankr. P. 24 4001(a) (“Relief from the Automatic Stay”). 25 The bankruptcy court thus did not commit an abuse of 26 discretion in not articulating analyses pursuant to the Curtis 27 factors or Rule 9019. The relevant standard for the bankruptcy 28 court was whether there was “cause” for granting relief from the 1 stay pursuant to Section 362(d), and that is the standard it 2 applied. (Docket No. 61 at 198 (specifying the Order is issued 3 under “authority pursuant to 11 U.S.C. § 362(d) to order relief 4 from the automatic stay”).) 5 b. Evidentiary Requirements 6 Much of Insurers’ challenge to the bankruptcy court’s 7 “cause” determination pertains to the handling of evidence. 8 Insurers allege that the Order had no evidentiary basis, that the 9 bankruptcy court was required to hold an evidentiary hearing, and 10 that the court failed to make explicit findings of fact. (See 11 Docket Nos. 60, 64.) With these arguments, Insurers misconstrue 12 the limited scope of stay relief proceedings. 13 It is well-established that “[a] motion for stay relief 14 is a summary proceeding,” in which “the [bankruptcy] court’s 15 discretion is broad.” In re Santa Clara County Fair Ass’n, Inc., 16 180 B.R. 564, 566 (B.A.P. 9th Cir. 1995); see also, e.g., Grella 17 v. Salem Five Cent Sav. Bank, 42 F.3d 26, 31 (1st Cir. 1994) 18 (“[T]he hearing on a motion for relief from stay is meant to be a 19 summary proceeding, and the statute requires the bankruptcy 20 court’s action to be quick.”); Lucore v. Specialized Loan 21 Servicing LLC for Wells Fargo Bank, N.A., No. 17-cv-308 JLS 22 (MDD), 2018 WL 1418022, at *2 (S.D. Cal. Mar. 22, 2018) (“The 23 proceedings to decide motions for relief from the automatic stay 24 are very limited.” (internal citation omitted)). Bankruptcy 25 courts do not adjudicate “the merits underlying substantive 26 claims,” in stay relief proceedings, but only determine “whether 27 the movant creditor has a colorable claim.” Grella, 42 F. 3d at 28 32 (collecting cases). 1 The abbreviated nature of stay relief proceedings has 2 led courts to conclude that evidentiary hearings are not 3 mandated, particularly where the “core facts are not disputed.” 4 In re Brown, 606 B.R. 40, 51 (B.A.P. 9th Cir. 2019); see In re 5 Everton Aloysius Sterling, 543 B.R. 385, 392 (Bankr. S.D.N.Y. 6 2015) (“[T]he Court is not required to hold a full-blown 7 evidentiary hearing on a motion to lift the automatic stay where 8 it is unnecessary to do so.”); In re Buczek, No. 22-2045, 2023 WL 9 7180644, at *3 (2d Cir. Nov. 1, 2023); Russo v Wilmington Sav. 10 Fund Soc’y, FSB, No. 23-cv-08275 (OEM), 2025 WL 788932, at *7 11 (E.D.N.Y. Mar. 12, 2025) (“[A] bankruptcy court is not required 12 to hold any hearing – much less a full evidentiary hearing – on a 13 motion for relief from automatic stay.”). 14 Nor does the failure to explicitly detail findings of 15 fact serve as grounds for reversal when the record provides 16 sufficient support for an inference of cause. See, e.g., In re 17 Meruelo Maddux Props., Inc., No. BAP CC-12-1304, 2013 WL 1890634, 18 at *5 (B.A.P. 9th Cir. May 6, 2013) (“Even if the bankruptcy 19 court rules without articulating . . . findings, there is no 20 reversible error where the record provides the reviewing court 21 with a full . . . view of the issues on appeal.”); In re Power 22 Equip. Co., LLC, 309 B.R. 552, 559 (B.A.P. 8th Cir. 2004) 23 (“[E]ven though the bankruptcy court did not make detailed 24 factual findings, an appellate court may affirm on any basis 25 support by the record.”). The absences of an evidentiary hearing 26 or detailed findings thus do not, in and of themselves, establish 27 abuse of discretion. Once more, the relevant question is whether 28 the record supported a plausible determination that cause existed 1 under Section 362(d)(1).2 2 The court finds that the record supports the bankruptcy 3 court’s determination that cause existed to modify the stay. The 4 central factual predicate underlying that determination -- the 5 existence of more than two hundred pending state court actions 6 permeated with state law issues -- is undisputed. (Docket Nos. 7 62 at 14; 70 at 8 n.2.) Those proceedings formed the backdrop 8 for the negotiated stipulation permitting four representative 9 cases to proceed while enjoining the remainder. 10 Bankruptcy courts routinely find cause to grant stay 11 relief in similar circumstances, because doing so promotes 12 judicial economy and allows for resolution of state law issues in 13 the proper forum. See, e.g., In re Calsol, Inc., 419 F. App’x 14 753, 754 (9th Cir. 2011) (“[A] desire to permit a state action to 15 proceed in a state tribunal has been recognized as a proper cause 16 to grant relief from the automatic stay.”); In re Castlerock 17 Props., 781 F. 2d 159, 163 (9th Cir. 1986) (affirming stay relief 18 allowing state law claimants to proceed in state court); In re 19 Wade, 1992 WL 332098, at *2 ("Cause may exist where the party 20 requesting relief from the automatic stay seeks to litigate state 21 law claims in state court.”); Pursifull v. Eakin, 814 F.2d 1501, 22

23 2 Insurers’ reliance on Federal Rule of Civil Procedure 52 is not persuasive. Although Rule 52 applies in contested 24 matters through Bankruptcy Rules 7052 and 9014, Rule 52(a)(3) expressly provides that findings and conclusions are not required 25 when ruling on a motion. Fed. R. Civ. P. 52(a)(3). The bankruptcy court did not conduct a bench trial on disputed facts; 26 it ruled on a motion based on the record and argument. Insurers 27 cite no authority suggesting that Rule 52(a)(3)’s motion exemption is inapplicable in the stay-relief context, and the 28 court declines to read such a qualification into the rule. 1 1506 (10th Cir. 1987) (cause existed where “the issues involved 2 were matters of state law best decided by the state courts”); 3 Winding Creek Solar LLC v. P. Gas and Electric Co., 2021 WL 4 2987409, at *4 (N.D. Cal. July 15, 2021) (“The Ninth Circuit has 5 recognized that allowing a state action to proceed in a state 6 tribunal can be proper cause to grant relief from the automatic 7 stay.”). 8 RCBS’ motion, which referenced 137 pages of evidence 9 submitted in connection with their injunction motion in the 10 adversary case, specifically discussed the justification of 11 judicial economy: “Modifying the stay to allow only four (4) 12 State Court Actions to go forward dramatically alleviates the 13 burden of litigation, and allows . . . more focused attention on 14 the mediation.” (Docket No. 61 at 15.) Moreover, approval of 15 the stipulation carried the added benefit of resolving the 16 adversary proceeding. The bankruptcy court was thus presented 17 with a record showing hundreds of pending state law actions and a 18 negotiated stipulation that would narrow active litigation while 19 preserving the stay for the remainder to facilitate mediation and 20 resolve a cumbersome dispute. Given these circumstances, it was 21 well within the bankruptcy court’s discretion to determine that 22 this measured modification of the stay appropriately balanced the 23 burdens of the debtor with the objectives of efficient case 24 administration and reorganization. 25 c. Consideration of Insurers’ Interests 26 Finally, Insurers argue that they are injured by the 27 Order because it allows for judgments in the Released State Court 28 Actions to attach to their policies. (Docket Nos. 60 at 28, 62 1 at 30-32.) That provision, the Insurers argue, re-allocates 2 risk, “causes a fundamental alteration of the Policies,” and 3 effectively “weaponizes the stay” against them. (Id.) 4 Insurers’ contention that the bankruptcy court was 5 required to balance their interests with those of RCBS and the 6 Committee is undermined by the design of Section 362’s automatic 7 stay, which is meant “to protect . . . the debtor and his 8 creditors.” In re Canejo, 96 F. 3d 346, 351 (9th Cir. 1996) 9 (internal citation omitted); In re Grace Industries, Inc., 341 10 B.R. 399, 405 (Bkrtcy. E.D.N.Y. 2006) (“[W]here a plaintiff seeks 11 relief from a stay to pursue a claim in another forum, the 12 interests or desires of the insurance company which provides 13 coverage of the claim are not considered in determining whether 14 the stay should be lifted.”) 15 Moreover, even if the bankruptcy court were required to 16 consider Insurers’ interests, the court sees no reason to 17 conclude that it did not do so; in fact, the bankruptcy judge 18 expressly determined that relief “[was] in the best interests of 19 . . . all parties in interest.” (Docket No. 60 at 16.) Insurers 20 have maintained all along that they are “parties in interest” for 21 purposes of this appeal, and both this court and the bankruptcy 22 court have designated them as such. (Docket Nos. 51 at 7; 67-1 23 at 48 (a prior bankruptcy court scheduling order for “part[ies] 24 in interest, including any Insurer”).) That categorization is 25 further supported by the very definition of “party in interest,” 26 which “is broad enough to include anyone whose financial interest 27 may be affected by the outcome of a bankruptcy case.” In re 28 Barnes, 275 B.R. 889, 892 (Bankr. E.D. Cal. 2002) (citing 11 1 U.S.C. § 1109(b)). 2 It is also common practice for bankruptcy courts to 3 approve stay relief that allows for attachment to insurance 4 policies, in line with Section 362(d)’s definition of “cause,” 5 which includes “lack of adequate protection.” 11 U.S.C. § 6 362(d)(1); In re Calsol, 419 Fed. App’x. at 754 (affirming order 7 granting relief from stay that “limit[ed] Appellee's recovery to 8 proceeds of insurance”); New Hampshire Ins. Co. v. Hill, 516 Fed. 9 App’x. 803, 804 (11th Cir. 2013) (affirming order modifying stay 10 to “allow Appellants to collect their claims to the extent of . . 11 . [debtor's] insurance coverage”); In re Glunk, 342 B.R. 717, 740 12 (Bankr. E.D. Pa. 2006) (“Under § 362(d)(1), bankruptcy courts 13 have routinely granted relief to permit personal injury 14 plaintiffs to . . . limit their collection efforts to the 15 available insurance benefits.”). 16 Insurers point to this court’s prior observation, made 17 in denying the Committee’s motion to dismiss the appeal, that the 18 bankruptcy court’s Order “creates a new set of risks . . . 19 stemming from impending litigation.” (Docket No. 60 at 42.) 20 Insurers contend this language confirms that the stay unduly 21 injures them by “caus[ing] a fundamental alteration of [their] 22 policies.” (Docket No. 62 at 30.) 23 Insurers misconstrue the court’s language in its 24 earlier order. The term “new set of risks” was used solely in 25 assessing whether Insurers were “persons aggrieved” for 26 bankruptcy appellate standing purposes. (Docket No. 51 at 3 27 (citing Matter of Point Center Financial, Inc., 890 F. 3d 1188, 28 1191 (9th Cir. 2018)).) The court concluded that lifting the nee enn eee ene en NO EE OI OI EE ED eee

1 stay exposed Insurers to the risk that judgments could be 2 enforced against available policy proceeds, a consequence 3 sufficient to establish pecuniary interest. The court did not 4 suggest that the Order substantively altered the terms, scope, or 5 obligations of the policies. 6 The bankruptcy court’s Order removed the injunction 7 imposed by Section 362, and the existence of litigation risk 8 following the lifting of the stay does not amount to a 9 contractual modification. As the committee points out, Insurers 10 remain free to assert whatever coverage defenses and policy 11 limitations exist to contest a “Survivor's ability to encumber 12 policy proceeds in a non-bankruptcy forum or the validity of any 13 such lien.” (Docket No. 67 at 47.) The Order thus did not 14 rewrite the policies or expand coverage. 15 For the above reasons, the court finds that the 16 | bankruptcy court did not abuse its discretion in approving the 17 stipulation modifying the automatic stay to permit continuation 18 of state court litigation. 19 IT IS THEREFORE ORDERED that the decision of the 20 bankruptcy court be, and the same hereby is, AFFIRMED. 21 | Dated: February 23, 2026 he bloom HK Ad. bE 22 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 23 24 25 26 27 28 13