Interstate Fire & Casualty Company and National Surety Corporation v. The Roman Catholic Bishop of Sacramento

• Court: District Court, E.D. California
• Decided: October 30, 2025
• 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 Nos. 2:25-cv-02262 WBS (lead COMPANY AND NATIONAL SURETY case) 13 CORPORATION, et al., 2:25-cv-02288 WBS 14 Appellants, 15 v. MEMORANDUM AND ORDER RE: APPELLEE’S MOTION TO DISMISS 16 THE ROMAN CATHOLIC BISHOP OF APPEAL SACRAMENTO, 17 Appellee. 18

19 ----oo0oo---- 20 Interstate Fire & Casualty Company and National Surety 21 Corporation and Certain Underwriters at Lloyd’s, London and 22 Certain London Market Insurance Companies (collectively, 23 “appellants”) have separately appealed the Bankruptcy Court’s 24 order granting relief from an automatic stay allowing several 25 state court actions to proceed against appellee Roman Catholic 26 Bishop of Sacramento. (Docket No. 1.) Appellee brought motions 27 to dismiss both appeals (Docket No. 26), which appellants opposed 28 1 (Docket No. 28; Certain Underwriters at Lloyd’s v. The Roman 2 Catholic Bishop of Sacramento, No. 2:25-cv-02288 WBS, ECF No. 18 3 (E.D. Cal. Oct. 3, 2025).) The cases were then consolidated 4 (Docket No. 31), and appellee filed its reply shortly after. 5 (Docket No. 34.) 6 I. Factual and Procedural Background 7 In 2019, the California legislature enacted AB 218, 8 which, in part, revived previously time-barred claims involving 9 childhood sexual abuse. (See Docket No. 28 at 5-6.) More than 10 250 individuals thereafter filed such claims against appellee. 11 (Id.) Appellee filed its bankruptcy petition on April 1, 2024, 12 and a committee of unsecured creditors (the “Committee”) -- 13 comprised of nine survivors of sexual abuse with claims against 14 appellee -- was appointed on April 12, 2024. (Docket No. 26 at 15 5-6.) 16 The Bankruptcy Court held a “case conference for the 17 presentation of survivor impact statements” on March 31, 2025; no 18 insurer was permitted to attend. (Docket No. 28 at 6-7.) Faced 19 with a torrent of impending tort litigation, appellee then sought 20 to extend the bankruptcy’s automatic stay, imposed by 11 U.S.C. § 21 362, to all pending abuse claims, including those brought against 22 its affiliates. (Id.) The Committee and other abuse survivors 23 objected, and an agreement was reached in the form of a 24 stipulation which enjoined “nearly all the State Court Actions 25 but modified the automatic stay such that up to six cases could 26 proceed to trial in state court.” (Docket No. 26 at 7.) 27 Appellee and the Committee ultimately agreed to grant four 28 actions relief from the stay (the “Released State Court 1 Actions”), and the Bankruptcy Court entered an Order approving 2 the stipulation on July 25, 2025. (Id.) 3 This appeal stems from the Bankruptcy Court’s Order 4 approving the stipulation. (See Docket No. 1.) Appellee argues 5 appellants are not “persons aggrieved” by the Order and therefore 6 lack standing. (See Docket No. 26.) The only issue before the 7 court on this appeal then is whether the appellants have standing 8 for bankruptcy appellate purposes to pursue this appeal. 9 II. Legal Standard 10 “All circuits, including this one, limit standing to 11 appeal a bankruptcy court order to persons aggrieved by the 12 order.” Matter of Point Center Financial, Inc., 890 F. 3d 1188, 13 1191 (9th Cir. 2018) (citation modified) (collecting cases). A 14 “person aggrieved” is defined as “someone who is directly and 15 adversely affected pecuniarily by a bankruptcy court’s order.” 16 Id. “An order that diminishes one’s property, increases one’s 17 burdens, or detrimentally affects one’s rights has a direct and 18 adverse pecuniary effect for bankruptcy standing purposes.” Id. 19 (citing Duckor Spradling & Metzger v. Baum Tr. (In re P.R.T.C., 20 Inc.), 177 F. 3d 774, 777 (9th Cir. 1999). The “persons 21 aggrieved” standard is prudential, and its chief purpose is 22 facilitating “efficient judicial administration.” Matter of 23 Fondiller, 707 F. 2d 441, 443 (9th Cir. 1983).1 24 1 In its motions to dismiss, appellee states that it 25 “takes no position on whether Appellants have Article III standing to appeal.” (Docket No. 26 at 9 n.13; Certain 26 Underwriters, No. 2:25-cv-02288 WBS, ECF No. 18 at 9-10 n.12.) 27 Appellants discuss Article III in passing, but their primary arguments concern the “persons aggrieved” standard. (See Docket 28 No. 28; Certain Underwriters at Lloyd’s, No. 2:25-cv-02288 WBS, 1 Appellants argue the “persons aggrieved” standard is 2 inapplicable, citing Lexmark Int., Inc. v. Static Control 3 Components, Inc., 572 U.S. 118 (2014), for the proposition that 4 prudential standing has been abrogated entirely, and Truck Ins. 5 Exch. v. Kaiser Gypsum Co., Inc. 602 U.S. 268 (2024) for the 6 proposition that one need only be a “party in interest” to have 7 bankruptcy appellate standing. 8 Appellants’ reading of Lexmark is overbroad. The 9 Supreme Court’s analysis of prudential standing in Lexmark 10 distinguished conventionally recognized limits of prudential 11 standing from the statutorily based “zone of interests” test, the 12 latter of which concerns whether a party “has a cause of action 13 under a statute, applying traditional principles of statutory 14 interpretation.” Lexmark, 572 U.S. at 1381 (citation modified). 15 At no point in Lexmark did the Court suggest prudential standing 16 was irrelevant generally. Id. at 1381-82 (“It is misleading to 17 label this a ‘prudential standing’ question.” (emphasis added)). 18 Neither is Kaiser Gypsum helpful to appellants. (See 19 Docket No. 28 at 12.) The discussion of “parties in interest” in 20 that case concerned another statute -- 11 U.S.C. § 1109(b) -- 21 regarding participation in Chapter 11 bankruptcy proceedings. 22 Kaiser Gypsum accordingly does not speak to the “persons 23 aggrieved” standard at issue here. 602 U.S. at 271. 24 The “persons aggrieved” standard governing bankruptcy 25

ECF No. 18 (E.D. Cal. Oct. 3, 2025).) 26 The propriety of applying “persons aggrieved” rather 27 than Article III in a bankruptcy appeal presents an interesting question, but it need not be decided here, because analysis under 28 the former resolves the issue of the latter. 1 appellate standing therefore applies, so it must be determined 2 whether appellants are “aggrieved” by the Bankruptcy Court’s 3 Order. 4 III. Discussion 5 A. “Persons Aggrieved” Standing 6 Appellee argues that appellants are not aggrieved by 7 the Order because (1) “Appellants assert they have no present 8 obligation to defend or indemnify [appellee],” and (2) “the 9 automatic stay is not designed to protect the financial interests 10 of insurance companies” and thus lifting the stay does not affect 11 appellants’ rights or make them financially worse off than they 12 were before. (Docket No. 26 at 12.) 13 Appellants respond that the Order “permits (and 14 arguably encourages) the attachment and enforcement of liens” on 15 their policies, that it “damages [appellants’] rights” in that 16 restricting judgment liens to insurance proceeds eliminates 17 appellee’s economic motivation to bring a vigorous defense, and 18 that by disallowing modification or vacatur, the Order “calls 19 into question [appellants’] ability to undertake certain actions 20 that they otherwise would,” e.g., conduct investigations into 21 settlement demands, participate in the defense of a Released 22 State Court Action, or contest a lien. (Docket No. 28 at 17-19.) 23 The court finds that appellants are sufficiently 24 aggrieved by the Bankruptcy Court’s Order to establish appellate 25 standing. The decision of the Bankruptcy Judge to approve the 26 stipulation exposes appellants to increased liability by its very 27 nature, because it creates a new set of risks -- and thereby 28 pecuniary effects -- stemming from impending litigation. 1 Moreover, the language of the Order is far from “insurance 2 neutral”; it guarantees that should judgment liens result from 3 the Released State Court Actions, those liens can only be 4 executed against appellants. (Docket No. 1 at 15-16); see In re 5 Thorpe Insulation Co., 677 F. 3d 869, 885 (9th Cir. 2012) (“A 6 plan is not insurance neutral when it may have a substantial 7 economic impact on insurers.”). It is hard to imagine a more 8 evident or direct diminution of property than a stipulation 9 providing that one’s assets are the sole recourse for judgment 10 enforcement. 11 Appellee’s argument that the stay is not “designed to 12 protect” the financial rights of insurers is unavailing. Its 13 cited authority does support the notion that automatic stays are 14 “intended solely to benefit the debtor estate,” but that 15 characterization applies where “the trustee does not seek to 16 enforce the protections of the automatic stay,” and a creditor 17 instead attempts to enforce the stay in the debtor’s place. In 18 re Pecan Groves of Arizona, 951 F. 2d 242, 245 (9th Cir. 1991). 19 That is not the case here. Appellants are not 20 creditors seeking to stand in the shoes of a debtor to challenge 21 a stay violation; they are, rather, asserting independent 22 financial rights expressly contemplated in the Bankruptcy Court’s 23 Order. Cf. id. at 245 (noting the relevant question was “whether 24 a creditor can attack violations of the automatic stay” (emphasis 25 added)); Matter of Petrone, 754 Fed. App’x 590, 591 (9th Cir. 26 2019) (confirming that defining a stay as “intended to protect 27 solely the interests of debtors and their estates” is relevant 28 when creditors seek to enforce violations of the stay). 1 Appellee’s argument that “Appellants believe they have 2 no immediate obligations in connection with the underlying 3 claims” is also fruitless. (Docket No. 26 at 13.) Appellee 4 provides no authority stating that a party’s purported subjective 5 understanding of their obligations is determinative of whether 6 they do, in fact, have obligations affected by a Bankruptcy 7 Court’s order. The Order in this case has an objective impact on 8 appellants regardless of what they may have at one time 9 acknowledged. See In re Thorpe Insulation Co., 677 F. 3d at 887 10 (harm to appellants found because “the plan affects Appellants’ 11 contractual rights, affects their financial interests, and has 12 the possibility of affecting their litigation rights in court”); 13 cf. California Dep’t of Toxic Substances Control v. Jim Dobbas, 14 Inc., 54 F. 4th 1078, 1091-92 (9th Cir. 2022) (holding that an 15 insurer seeking to defend an insured who will not or cannot 16 defend itself “has a protectable interest for purposes of Rule 17 24(a)(2), no matter what position, if any, the insurer has taken 18 as to coverage”). 19 The Bankruptcy Court’s Order thus impacts appellants 20 because it imminently and detrimentally affects both their 21 litigation rights and their financial interests. The pecuniary 22 effect of the Order -- the exposure to liability it creates -- is 23 neither speculative nor anticipatory. Cf. In re Thorpe 24 Insulation, 677 F. 3d at 887 (finding sufficient injury in fact 25 in the Chapter 11 context because the potential liabilities of 26 insurance companies were increased). 27 Because the Bankruptcy Court’s Order diminishes 28 appellants property and detrimentally affects their rights, 1 appellants are “persons aggrieved” for purposes of bankruptcy 2 appellate standing. 3 B. Equitable Considerations 4 In light of equitable issues raised during oral 5 argument, the court makes two further observations which counsel 6 in favor of finding standing. 7 First, under conventional principles of appellate 8 procedure, it is “well settled” that “only parties to a lawsuit, 9 or those that properly become parties, may appeal an adverse 10 judgment.” Marino v. Ortiz, 484 U.S. 301, 304 (1988) (citing 11 U.S. ex rel. State of Louisiana v. Boarman, 244 U.S. 397, 402 12 (1917)); see also Washoe Tribe of Nevada & California v. 13 Greenley, 674 F. 2d 816, 818 (9th Cir. 1982) (“The general rule 14 is that one who was not a party of record before the trial court 15 may not appeal that court’s judgment.”). However, appellants 16 were participants in the decision now on appeal: they timely 17 filed objections to the stipulation, which the Bankruptcy Judge 18 approved after a hearing during which appellants’ arguments were 19 rejected. (See Docket No. 28, at 10-11.) They were thus parties 20 to the proceeding below, and their extensive participation 21 supports their entitlement to be heard in an appeal on its 22 outcome. See In re Commercial Western Finance Corp., 761 F. 2d 23 1329, 1335 (9th Cir. 1985) (“[A]ttendance and objection should 24 usually be prerequisites to fulfilling the ‘person aggrieved’ 25 standard.”) (collecting cases). 26 Second, appellee has not demonstrated -- either in its 27 briefing or at oral argument -- that finding standing for 28 appellants would unduly delay or prejudice its case. Courts have 1 long treated delay and prejudice as equitable considerations in 2 determining whether to allow access to appellate review in varied 3 procedural settings. Cf. Curtiss-Wright Corp. v. General 4 Electric Co., 446 U.S. 1, 8 (1980) (finding fitness for appeal 5 under “no just reason for delay” standard requires balancing 6 judicial economy and equities); Wood v. GCC Bend, LLC, 422 F. 3d 7 873, 878 (9th Cir. 2005) (“It is left to the sound judicial 8 discretion of the district court to determine the appropriate 9 time when each final decision . . . is ready for appeal. This 10 discretion is to be exercised in the interest of sound judicial 11 administration.” (internal citations and quotation marks 12 omitted)). 13 Though the circumstances of this appeal are somewhat 14 atypical, general principles of equity and economy do not weigh 15 heavily against a finding of standing. Cf. In re Crystal 16 Properties, Ltd., L.P., 268 F. 3d 743, 755-56 (9th Cir. 2001) 17 (“When reviewing a bankruptcy court’s decision . . . a district 18 court functions as [an] appellate court and applies the standard 19 of review generally applied in federal court appeals.” (internal 20 citations and quotation marks omitted)) (collecting cases). 21 Under the schedule to be set by this court it is not anticipated 22 that the appeal will delay the bankruptcy proceedings in any 23 significant way, and considerations of fairness dictate that 24 appellants be afforded an opportunity to be heard. 25 IT IS THEREFORE ORDERED that appellee’s motion to 26 dismiss (Docket No. 26) be, and the same hereby is, DENIED. 27 Pursuant to the discussion at the hearing on this motion, the 28 briefing schedules for this appeal (Docket Nos. 32-33) will be nee nen meen eI I IIE IIE IOI SE OSE IRE IGE IIE IE ESD eee

1 continued, and within seven (7) days of this Order the parties 2 shall submit a stipulation setting forth the new agreed-upon 3 | briefing schedule. If the parties do not propose a stipulation 4 by that date, the court will issue a briefing schedule. 5 | Dated: October 29, 2025 bet, . ak A / □ 6 WILLIAM B. SHUBB 7 UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10