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

Opinion

----oo0oo---- INTERSTATE FIRE & CASUALTY Nos. 2:25-cv-02262 WBS (lead COMPANY AND NATIONAL SURETY case) CORPORATION, et al., 2:25-cv-02288 WBS Appellants, v. MEMORANDUM AND ORDER RE: APPELLEE’S MOTION TO DISMISS SACRAMENTO, Appellee.

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

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

continued, and within seven (7) days of this Order the parties shall submit a stipulation setting forth the new agreed-upon briefing schedule. If the parties do not propose a stipulation by that date, the court will issue a briefing schedule. Dated: October 29, 2025 bet, . ak A / □ UNITED STATES DISTRICT JUDGE 10