# The Diocese of Camden, New Jersey

> United States Bankruptcy Court, D. New Jersey · August 29, 2023

URL: https://www.frixlaw.com/law-library/cases/10459784

## Case

- **Court:** United States Bankruptcy Court, D. New Jersey
- **Decided:** August 29, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10459784

## How later opinions describe it (automated extraction)

- Finding a convenience class for claims of $10,000 or less is reasonable and necessary for the administration of the estate

## Opinion text

FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY
In re:
Case No. 20-21257 (JNP)
DIOCESE OF CAMDEN, NEW JERSEY,
Chapter 11
Debtor.

MEMORANDUM DECISION DENYING CONFIRMATION
OF EIGHTH AMENDED PLAN
JERROLD N. POSLUSNY, JR., U.S. Bankruptcy Judge
The Diocese of Camden, New Jersey (the “Debtor”), and the Official Committee of Tort
Claimant Creditors (the “Committee,” and with the Debtor, the “Plan Proponents”) seek
confirmation of their jointly proposed eighth amended plan of reorganization (the “Plan’”) along
with the accompanying agreement creating a trust (the “Trust Agreement”) and trust distribution
procedures (the “TDPs”). Dkt. Nos. 1724, 1725. The only objection to confirmation was filed by
certain insurers.! For the reasons discussed below, the Court will deny confirmation of the Plan.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Court HEREBY FINDS, DETERMINES, AND CONCLUDES as follows:
The findings and conclusions set forth herein and in the record of the Confirmation Hearing
constitute the Court’s findings of fact and conclusions of law under Federal Rule of Civil
Procedure (“Federal Rule”) 52, made applicable by Federal Rule of Bankruptcy Procedure
(“Rule”) 7052, and 9014. To the extent any of the following conclusions of law shall be determined

' These include Certain Underwriters at Lloyd’s, London and Certain London Market Companies
(“LMI”); Century Indemnity Company, as successor to CCI Insurance Company, as successor to
Insurance Company of North America, Federal Insurance Company and I]Hnois Union Insurance
Company (“Century”); Interstate Fire & Casualty Company (“Interstate”); Granite State Insurance
Company, Lexington Insurance Company, and National Union Fire Insurance Company of
Pittsburgh PA (“AIG”); and The National Catholic Risk Retention Group, Inc. (“Catholic Risk”)
(collectively, the “Insurers”). AIG and Catholic Risk settled with the Plan Proponents during the
confirmation process and no longer object.

to be a finding of fact, it shall be so deemed, or any of the following findings of fact shall be
determined to be a conclusion of law, it shall be so deemed.
Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and
(b)(1), and the Standing Order of the United States District Court dated July 10, 1984, as amended
September 18, 2012. Venue is proper in this Court pursuant to 28 U.S.C. § 1408. Consideration of
the Plan constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (L), (M), and (O).
The Debtor is eligible to be a debtor under section 109 of Title 11 of the United States
Code (the “Bankruptcy Code”) and the Plan Proponents are proper proponents of a plan under
section 1121(a) of the Bankruptcy Code.
Background
The Debtor is a nonprofit religious corporation formed on June 17, 1938, under N.J.S.A.
§§ 16:15-9 to 15:15-17, PP-0266 § 56.* Under N.J.S.A. § 16:15-10, the five trustees of the Debtor
are the Bishop, the Vicar General, the Chancellor, and two priests of the Diocese. Id, The Debtor
is an ecclesiastical district within the Catholic Church comprised of the southern six counties of
New Jersey — Camden, Gloucester, Atlantic, Cape May, Cumberland, and Salem counties. Id. □
25. The Diocese encompasses approximately 480,000 Catholics across 62 Parishes. Id. 4] 25, 27,
55.
There are four Missions within the Debtor’s district: three are organized and operated as
nonprofit corporations in accordance with Title 15A of New Jersey Law although their respective
corporate governance structures mirror that of a Title 16 parish; the fourth is a non-profit
membership corporation of which the Debtor is the member. Id. 4 58. The Debtor operates or is

“Individual exhibits are referred to as “PP” “JX” “LMI” or “IC” then followed by the exhibit
number. Transcripts of hearings are referred to by the date and time of the trial, e.g. “Oct. 7 pm
Transcript, Page No., Line No.”

affiliated with twenty-two elementary schools, a pre-school daycare, and five high schools.
63-65. Three of the five high schools are separately incorporated as Title 15A non-profit
corporations. Id. | 65.
Additionally, there are separately incorporated non-profit Catholic Ministry Entities that
carry out various ministries of the Catholic Church within the territory of the Debtor, which
include, among others, the Catholic Charities Diocese of Camden Inc., Diocese of Camden Trusts,
Inc. (7DOCT”), Diocese of Camden Healthcare Foundation, Inc., The Diocesan Housing Services
Corporation of the Diocese of Camden, Inc., The Tuition Assistance Fund, Inc., and Padre Pio
Shrine Buena Borough, NJ, Inc. Id. {J 72, 74-117. DOCT is a separately incorporated non-profit
institution which provides funding and long-term capital to the Debtor. PP-0266 4 98. DOCT
currently holds over $100 million in assets. Nov. 14 Transcript, 37:1-3. The Other Catholic Entities
(the “OCE”) consist of the Parishes, Missions, Schools, Catholic Ministry Entities, and all other
entities listed under Article 2.2.80 of the Plan.’ Plan Art. 2.2.80.
The Debtor holds cash and investment funds on behalf of the OCE in several accounts
referred to as the “Revolving Fund” at PNC Bank. Pursuant to the “Parish Trust Agreements,” the
Revolving Fund is held ina series of investment accounts for the benefit of the OCE, which maintains -
their excess funds. Dkt. No. 1724 at 23 (the “Disclosure Statement”); Nov. 14 Transcript, 13:1~6;
Nov. 10 Transcript, 148:2-12. The OCE deposit funds in excess of one month’s operating expenses
into the Revolving Fund and are paid 3% interest on their deposits. Nov. 10 Transcript, 148:2-12. The
Revolving Fund lends money to the OCE, for large capital expenditures. Id. As of November 2022,
the Revolving Fund held in excess of $90 million, which funds are invested. Id. at 148:13-14. The
Debtor’s cash assets and receivables are approximately $37.3 million, with a liquidation value of

> The OCE are listed in Attachment D. Dkt. No. 1144.

approximately $8 million. PP-0420. The Debtor also holds real property and equipment valued at
$21.15 million, with a liquidation value of $19 million. Id.
The Debtor entered into a revolving loan agreement with PNC Bank (the “PNC Loan”),
the outstanding balance of which was $22,807,500 as of September 30, 2020. Disclosure
Statement, at 34; see also Nov. 10 Transcript, 135:22-25, DOCT has pledged its assets as security
for this loan, and pursuant to the loan agreement, must maintain a balance of 200% of the
outstanding loan amount, which required approximately $46 million as of December 2022. Id.;
Dkt. No. 2919 § 5c.4 .
The Debtor has approximately $7.1 million in restricted cash assets and the OCE have in
excess of $30 million, according to the testimony of Allen Wilen. Nov. 14 Transcript, 40:10-17.
History of Abuse
In 2002 both civil and church authorities recognized that the historic abuse and exploitation
of minor children by priests was a serious problem that needed to be addressed to prevent such
conduct from happening in the future. PP-0266 J 46. The Debtor took steps, including entering
into compacts with county prosecutors and the New Jersey Attorney General (the ‘2002
Memorandum of Understanding”), requiring fingerprint-facilitated criminal history background
checks for every adult employee having regular contact with minors, and implementing zero
tolerance policies regarding sexual abuse. Id. { 7. In accordance with the 2002 Memorandum of
Understanding, the Debtor reports every allegation of abuse of a minor by Diocesan priests to law
enforcement authorities. Id. § 48. The Debtor publicly released the names of 56 priests (which was
reduced to 55 priests after further review) and one deacon of the Debtor who were credibly accused
of abusing minors prior to the Petition Date. Id. | 33. The Debtor offers therapeutic care to anyone

4 Neither party cited to any testimony or documentary evidence for these facts. However, the
parties premised arguments upon these statements being facts, and they do not appear to be in
reasonable dispute.

who comes forward as a survivor of sexual abuse, amounting to an initial twenty-five counseling
sessions per survivor with the option to request additional sessions after a panel of psychologists
reviews the survivor’s case to determine if more sessions are warranted. Nov. 9 Transcript, 63:21-
64:11. The Debtor has paid nearly $1 million to provide these services to date. Id, at 64:1-14.
From 1990 to 2019, the Diocese reached 99 settlements to abuse survivors totaling
approximately $10.1 million. PP-0266 { 36.
In December 2019, the State of New Jersey passed the New Jersey Child Victims Act (the
which reopened the statute of limitations related to claims of child sexual abuse, allowing
previously time barred claims of this nature to be brought for a two-year period from the passage
of the CVA, through November 30, 2021, as well as expanding the statute of limitations for any
such claims which were not time barred as of the date enactment. Oct. 6 pm Transcript, 67-68;
N.J.S.A. § 2A:14-2a,
The IVCP
Prior to the passage of the CVA, on June 15, 2019, the Debtor along with other Dioceses
in New Jersey, established the Independent Victims Compensation Program (““IVCP”). The [VCP
was a voluntary out of court program to settle child sex abuse claims. The Debtor participated in
the IVCP through July 31, 2020. Disclosure Statement, at 36. As explained in more detail in the
9019 Decision (defined below), the IVCP was administered by two independent experts, Kenneth
Feinberg and Camilie Biros (the “IVCP Administrators”), who reviewed and evaluated claims,
placing each claim into a category based on the allegations, with increasing ranges of
compensation for more severe allegations of abuse. See id. at 75; PP-0065-A, Claims □□□□
reviewed, and the IVCP administrators met with the claimants individually, adjusting the claim
amounts as appropriate. Oct. 17 pm Transcript, 67:9-11. The Debtor resolved a total of 71 claims
through the IVCP, with an average settlement amount of $114,000 for a total of $8.1 million.

Disclosure Statement, at 36. Approximately 14 of the 71 claims were resolved after the CVA
became effective. There is no evidence as to whether any of the settling claimants were represented
by counsel. Oct. 17 am Transcript (corrected), 106:25-107:3. The Debtor entered into and paid
these settlements without seeking any compensation from its liability insurance policies. Oct. 17
pm Transcript, 101:17-20.
The Insurance Policies
Since at least 1969, the Debtor has maintained an insurance program for itself, and the
OCE. JX-0001-0047; see also Dkt. No. 1087 { 8. This included maintaining multiple liability
insurance policies (the “Policies”) issued by the Insurers, many of which included a requirement
that the Debtor maintain its own self-insured retentions (“SIRs”). Id. (10; Oct._7 Transcript
(corrected), 23:22-24; 33:13-18. Some of the Policies contain clauses which permit the Insurers to
be involved in the defense of a claim against the Debtor that implicates the particular policy. Oct,
7 Transcript (corrected), at 158:10-15. Other Policies require the applicable Insurer to defend the
Debtor in the wake of a claim against the Debtor under specific circumstances. See, e.g., JX-0002;
JX-0004 § IL.A.2.a.
The Policies are property of the Estate and therefore are subject to the exclusive core
jurisdiction of this Court under section 541 of the Bankruptcy Code. See A.H. Robins Co. v.
Piccinin, 788 F.2d 994, 1001 (4th Cir. 1986) (the weight of authority finds that insurance contracts
are property of the estate); In re Davis, 730 F.2d 176, 184 (Sth Cir.1984) (same) (citing In re Johns-
Manville Corp., 40 B.R. 219, 231 (S.D.N.Y. 1984)). The assignment or sale of the Policies to fund
the Plan in this case is within the Court’s core jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(N).
The Court has jurisdiction over the interests in the Policies (including the Channeled Claims
against the OCE) because the Policies are being sold. 11 U.S.C. §§ 363(e) and (f), 1123(a)(S)(D)
and (b)(4) and (5); 28 U.S.C. § 157(b)(2)(L), (N) and (OQ).

The Bankruptcy
The Debtor filed a petition under Chapter 11 the Bankruptcy Code on October 1, 2020 (the
“Petition Date”), due in-part, to potential liability it faced for claims from sexual abuse survivors
(the “Survivor Claims”) as well as declining income due to the COVID-19 pandemic. Disclosure
Statement, at 44. On October 23, 2020, the Office of the United States Trustee (the “UST”)
appointed the Committee. Dkt. No. 111. The UST appointed the official committee of unsecured
trade creditors (the “Trade Committee”) on December 23, 2020, Dkt. No, 293, Shortly after the
Petition Date, the Debtor filed an adversary proceeding naming the Insurers as defendants (the
“Insurance Action”) seeking declaratory relief including a determination that the Policies imposed
a contractual obligation for the Insurers to provide coverage for the Survivor Claims. Adv. Pro.
No. 20-1573, Dkt. No. 1.
Beginning on December 4, 2020, Chief Judge Michael B. Kaplan served as mediator
between the Debtor and the Committee, in an attempt to reach agreement on the claims bar date.
See Nov. 9 Transcript, 66:2-7. The Most Reverend Dennis J. Sullivan, D.D. (the “Bishop”), Father
Robert Hughes, Laura Montgomery, and counsel for both the Debtor and the Committee, and
several attorneys for Survivors participated in the mediation. id. That mediation was not successful,
and the parties did not agree to a bar date. Id, 66:20-22.
In an order issued on February 11, 2021 (the “Bar Date Order” Dkt. No. 409) the Court
established June 30, 2021, as the deadline for all Creditors to file proofs of claim in this Chapter
Case (the “Bankruptcy Case”). A total of 362 Survivor claims were filed by abuse survivors (the
“Survivors”), JX-0048-0410. The parties agree that there are approximately 324 non-duplicative
Survivor Claims. Oct. 17 pm Transcript, 77:7-9.

_ An order appointing the Honorable Jose L. Linares (Ret.) as mediator and referring the
case to global mediation was entered on May 20, 2021. Dkt. No. 640. There were at least seventeen

mediation sessions between December 2020 and April 2022. Nov. 9 Transcript, 67:5-13. There
were no less than eight mediation sessions held with the Insurers, the Committee, and the Debtor,
over several months until the Debtor reached an agreement with the Insurers and filed a motion
for approval of the settlement on January 5, 2022, which was amended on February 2, 2022. □□□□
Nos, 1087, 1144 (the “Insurance Motion”).
On October 12, 2021, the Committee filed an adversary proceeding seeking declaratory
relief that DOCT was not a separate entity, that the investment funds held by DOCT were not held
in a valid trust and were property of the estate. Adv. No. 21-1393, Dkt. No. 12; Nov. 14 Transcript,
36:3-37-15.0
The Insurance Settlement
As discussed in more detail in the 9019 Decision, the Insurance Motion was filed pursuant
to Rule 9019 and section 363(f) the Bankruptcy Code seeking approval of the Insurance Settlement
and the sale the Policies back to the Insurers. Dkt. Nos. 1087 and 1144. The Insurance Settlement
provides that the Insurers would pay $30 million (the “Settlement Amount”) into a trust (the “Fifth
Plan Trust”), which was to be established as part of a Chapter 11 plan of reorganization which
became the “Fifth Amended Plan” to satisfy the Survivor Claims. Id.; LMI-0013. Half of the
Settlement Amount would have been treated as the purchase price to allow the Insurers to
repurchase the Policies from the Debtor as weil as any rights in the Policies held by the OCE. See
id. at 5, 8, 18-20, 22. The other half would be treated as consideration for a channeling injunction,
which would funnel any future claims related to abuse to the Fifth Plan Trust and an injunction,
preventing any such potential claimants from pursuing the Insurers for those claims. Id. A trial

> The Committee filed two additional adversary proceedings on the same day for declaratory relief
and recovery of alleged fraudulent transfers, both seeking findings that the Debtor’s estate included
assets the Debtor argued were not property of the estate. See Adv. Nos, 21-1394, 21-1395.

date of April 6, 2022 (the “Original Trial Date”) was set to consider the Insurance Motion, which
was adjourned to April 19, 2022. Dkt. Nos. 1219, 1360.
All parties, including the OCE, conducted extensive discovery related to the Insurance
Motion and were involved in multiple discovery disputes. See, e.g., Dkt. Nos. 1139 (OCE’s letter
to Court arguing the Committee’s discovery requests are overburdensome); 1152 (Debtor’s letter
updating Court on resolution of certain discovery disputes); 1153 (insurers’ letter to Court seeking
a protective order ruling that the Insurers did not have to turn over any information of
communications in furtherance of the Insurance Settlement or that would be otherwise covered by
the mediation privilege); 1154 (OCE’s letter regarding the scope of discovery); 1157 (Committee’s
letter to Court disputed discovery issues); see also Nov. 16 Transcript, 113:2-5,
While discovery was ongoing, the Debtor filed disclosure statements and proposed plans
which incorporated the Insurance Settlement. Dkt. No. 1393. The Court approved Fifth Amended
Disclosure Statement in support of the Fifth Amended Plan on April 6, 2022. Dkt, No, 1447.
The Committee opposed the [Insurance Motion and filed a motion for summary judgment
seeking denial of the Insurance Settlement on April 6. Dkt. No. 1451. The Committee later filed a
motion for judgment under Federal Rule 52(c), which effectively incorporated the summary
judgment motion. Dkt. No. 2667. The decision on these motions (the “9019 Decision”) is issued
contemporancously with this Decision.
The Committee Settlement
Throughout this time, the Debtor and the Committee continued to engage in mediation
sessions. See. e.g., Noy. □□ Transcript, 113:6-17. At a mediation session on April 11, 2022, the
Debtor and the Committee reached an agreement on the monetary portion of the settlement, and
they continued to negotiate other terms of what became the committee settlement agreement (the

“Committee Settlement”). Apr. 12 Hrg., at 4:07 pm; Nov. 16 Transcript, 114:19-116:23; [C-102
(“Weisenberg Dep. Transcript”), 82:15-83:15.
Following the agreement reached on April 11, the Committee used the Fifth Amended Plan
and its corresponding trust distribution procedures as an initial draft, revised those documents and
sent redlines to the Debtor’s counsel. Nov. 16 Transcript, 117:24~118:1; JX-0434. The Plan
Proponents continued to negotiate and revise the documents, either during or following calls, with
one side or the other marking up the documents and sending the redline to the other side. Id. 118:1-
7; Weisenberg Dep. Transcript, 58:2-59:7. Negotiations between the Debtor and the Committee
regarding the Plan were contentious. Nov. 16 Transcript, 118:11-14.
Emails and redlines of documents reflect the editing process between the Debtor and the
Committee. See JX-0419-0449; JX-0451-0470; Weisenberg Dep. Transcript, 84:7-16. The
Debtor continued to negotiate the provisions of the TDPs. Id. at 149:14—16. For example, the
Committee initially proposed that the most severe of the Survivor Claims be liquidated through □

jury trials in state court, and the Debtor objected to that proposal. Nov. 16 Transcript, 123:18—23,
124:8-9. That provision ultimately was not included in the Plan. In addition, the Debtor sought
reimbursement of defense costs that it might incur in defending abuse claims, to which the
Committee ultimately agreed. Weisenberg Dep. Transcript, 83:22-84:6.
The Plan
As noted, the Disclosure Statement and Plan, along with the accompanying Trust
Agreement and the TDPs were filed on June 1, 2022, Dkt. Nos. 1724, 1725. The Plan Proponents
filed two supplements to the Plan. Dkt. Nos. 2006, 2089, The Plan is the only plan pending
approval before the Court. Dkt. No. 3069 at 27 (citing Dec, 28, 2022 Hrg. at 2:50).° The Plan □

The Fifth Amended Plan was filed by the Debtor and supported by the Insurers, but both have
now proposed new disclosure statements or plans. There is no indication the Fifth Amended Plan
was ever solicited, and no trial date for confirmation was set. Similarly, the Court ruled it will not
consider the Insurers’ disclosure statement until after it rules on this Plan.
10

Proponents filed a revised proposed confirmation order (the “Revised Confirmation Order”)
altering certain language and aspects in the Plan on October 4, 2022. Dkt. No. 2586.
Article III of the Plan establishes nine classes of claims, and the claims in each class are
substantially similar to the other claims in that class. Plan Art. 3.1-3.3. The Plan specifies that
claims in Class 1 (Priority Non-Tax Claims) are unimpaired under the Plan and are conclusively
presumed to have accepted the Plan. Plan Art. 5.1. The Plan designates claims in Class 2 (PNC
Bank Claim), Class 3 (General Unsecured Claims), Class 4 (Pension Claims), Class 5 (Survivor
Claims Other than Unknown Survivor Claims), Class 6 (Unknown Survivor Claims), Class 7A
(Survivor Related Contingent Claims), Class 7B (Survivor Related Contingent Claims), and Class
8 (Non-Abuse Litigation Claims) (collectively, the “Impaired Classes”) as impaired and specifies
the treatment of the claims in these classes. Id. Arts. 5.2-5.9.
The Plan provides for the treatment of Unclassified Claims, including Administrative
Expense Claims, Priority Tax Claims, U.S. Trustee Fees, and Fee Claims. Plan Arts. 4.1-4.4. The
Plan provides that: “[a]ll U.S. Trustee Fees due and payable prior to the Effective Date shall be
paid by the Debtor on the Effective Date. After the Effective Date, the Reorganized Debtor shall
pay any and all U.S. Trustee [fees] when due and payable.” Id. Art. 4.3. The payment of Fee Claims
to retained professionals will be subject to final review by the Court under section 330 of the
Bankruptcy Code. Id. Arts. 2.2.54, 4.4; Disclosure Statement, Art. X(f).
i The Trust
Under the Plan, Survivors’ Claims will be channeled to a trust (the “Trust”) to be
established on the Effective Date by a channeling injunction (“Channeling Injunction’). Plan Art.
11.2. Pursuant to the Plan, the Committee selected Michael Dundon to be the administrator (the
“Trust Administrator”), Dkt. No. 2006. Either the Debtor, or the Trust Administrator may object
to the Survivor Claims. Plan Arts. 8.6, 12.12. With respect to the Survivor Claims, including those

11

that are Unknown Survivor Claims, the Trust will be funded with: (1) $87.5 million by the Debtor
and the OCE; (ii) any proceeds held by the Debtor or the Reorganized Debtor on account of
Insurance Settlement Agreements as set forth in Article 7.2 of the Plan; and (iii) the Transferred
Insurance Interests (defined below). Plan Art. 7.2.1.
The total $87.5 Million will be comprised of $67.25 million from the Debtor, $10 million
from DOCT, $10 million from the OCE, and $250,000 from the Catholic Ministry Entities other
than DOCT. Plan Art. 7.2.2 The Debtor’s contribution of $67.25 million is comprised of $29.75
million on the effective date of the Plan (the “Initial Contribution”), and then $10 million on the
first, second, and third anniversaries of the Effective Date, and $7.5 million on the fourth
anniversary of the Effective Date. Id. Art. 7.2.2. The Initial Contribution will be comprised of
$14.75 million in non-restricted cash accounts held by the Debtor, and a $15 million loan from
DOCT (the “DOCT Loan”), Id.; PP-0419. The Debtor’s yearly contributions will be funded by
loans from DOCT. Plan Art. 7.2.2.
In addition to the $10 million contribution on the Effective Date of the Plan, the Parishes,
Schools, and Missions will: (i) waive claims against the Debtor’s estate, and (ii) grant a lien on
their Revolving Fund assets to secure the Debtor’s over-time payments to the Trust. Id.; Nov. 10
Transcript, 143:15-17. Similarly, in addition to tts $10 million contribution, DOCT will contribute
(i) a loan of $15 million to assist in funding the Initial Debtor Contribution, and (ii) a waiver of
claims against the Debtor’s estate. Plan Art. 7.2.2; Nov. 10 Transcript, 143:5~13. The Catholic.
Ministry Entities will contribute (7) $250,000 to the Trust on the Effective Date, and (it) a waiver
of claims against the Debtor’s estate. Plan Art. 7.2.2; Nov. 10 Transcript, 143:15-19.
As noted, under the Plan, the Debtor’s interest in the Policies will be transferred to the
Trust. The Plan defines this as the Debtor’s and the OCE’s rights to receive Insurance Policy
proceeds (the “Transferred Insurance Interests”) and claims (the “Coverage Claims”) under or

12

relating to the Insurance Policies issued by the Insurers are assigned to the Trust. Plan Arts. 2.2.34,
2.2.107, 7.2.3. Specifically, “Transferred Insurance Interests” is defined as “(a) the proceeds of
such Non-Settling Insurer Policies and all claims for such proceeds; and (b) all coverage claims
against the Non-Settling Insurers, including, but not limited to, all claims based on, or related to,
the Non-Settling Insurers’ conduct concerning insurance coverage for, or defense or settlement of,
any [Survivor] Claim.” Id. Art. 2.2.107. The Trust Agreement contemplates wind-down and
termination of the Trust after (1) liquidation, administration, and distribution of the Trust assets,
and (ii) its full performance of all other duties and functions set forth in the Plan, the Trust □
Agreement, and the TDPs., Id. Art. 7.13; Trust Agreement Art. 4.2. The Plan also provides that the
Trust Advisory Committee (“TAC”) will be established pursuant to the Trust Agreement on the
Effective Date. Plan Art. 7.7. The TAC will be appointed by the Committee: Id.; Trust Agreement
Art. VU. The TAC has the right to approve the Trust Administrator’s compensation. Trust
Agreement Art. VI. The First Supplement to the Plan discloses that the initial members of the TAC
will be the members of the Committee. Dkt. No. 2006.
There are three mechanisms for valuing and resolving Survivor Claims: (1) the Expedited
Distribution, (11) the Initial Review Determination; and (iii) the Verdict Value Assessment. Plan,
Art. 8; TDPs Arts. 4-8 The Expedited Distribution grants a $2,500 payment to resolve any Survivor
Claim that is properly filed and signed if the Survivor elects such treatment. Plan Art. 8.3. The
other Survivor Claims will be assessed by the abuse claims reviewer, Pau! Finn (the “Survivor
Claims Reviewer’), in accordance with the guidelines in the TDPs. Plan Arts. 2.2.2, 8.2. Finn was
selected by the Committee. Dkt. No. 2006 (the “First Plan Supplement”). Under the Initial Review
Determination, the Survivor Claims Reviewer will determine whether a claim is allowed and
review the claim to determine the number of points to be assigned to any allowed claim,
representing the Survivor’s share of the Trust assets. TDPs Art. 1, 4; Plan Art. 8.3. This mechanism

13

does not impact the amounts to be paid into the Trust by any party, but instead only the percent of
the Trust’s assets paid to any specific claim. See Plan Art. 8.2. The Survivor Claims Reviewer can
be removed for breaching his or her fiduciary obligations. Trust Agreement Art. 3.2.12.
Finally, the Plan and TDPs call for some claims to undergo a “Verdict Value Assessment,”
through which a retired judge, (the “Neutral”), will review the claim to estimate the amount of
damages that a reasonable jury might award, referred to as the “Verdict Value.” TDPs Art. 8. The
Neutral will be selected by the Trust Administrator in consultation with the TAC and other parties
and be subject to Court approval. Revised Confirmation Order § 9: TDPs Art. 8(ii).
The Verdict Value Assessment process is described in Article 8 of the TDPs. Any Insurer
whose policy is implicated by a claim undergoing this process will be notified and given
“reasonable” opportunity to participate, including presenting potentially applicable defenses at its
own expense. TDPs Art. 8{viii). A Survivor is required to participate by responding to
“reasonable” discovery requests from the Debtor or Insurers, cooperating with the Neutral in
establishing the value and validity of the claim, sitting for a single six-hour sworn deposition, and
submitting to a mental health exam. TDPs Art. 80). The TDPs also specify that the Neutral is to
consider evidence submitted by the Trust Administrator, the Survivor, the Debtor, or an Insurer,
and the relative fault of other parties potentially responsible for the injury to the Survivor, as well
as to apply the same standard of proof under applicable law. Id. Art. 8(vi). However, neither the
Plan, the Trust Agreement, nor the TDPs list any specific criteria or factors of what would be
necessary to establish that a claim be allowed, or how to determine the value of a given claim. See
Plan; Hinton Declaration 27, 38; TDPs Arts. 114), 8(vi). In fact, the TDPs specify that the
“precise method, manner and procedures” shall be determined by the Neutral upon written notice
to parties. TDPs Art. 8(ix). Further, the TDPs limit discovery to ninety days, barring exceptional
circumstances, as determined by the Neutral. Id, Art. 8(iv).

14

Under the TDPs, the Neutral issues a written Verdict Value decision. Only the Trust
Administrator or the Survivor may appeal the Verdict Value through the “State Court Option.”
TDPs Arts. 8(xi) and 9(i).’ Alternatively, the Trust Administrator may make seek satisfaction of
the of the Verdict Value from any responsible Insurer. Id. Art. 8(Gxti). If the responsible Insurer
does not satisfy the request within thirty days, the Trust Administrator can reduce the Verdict
Value to a “stipulation of judgment” and pursue a coverage claim in state court against any such
Insurer. Id. Art. 8(xiti}. The Plan’s language is inconsistent regarding the extent that the Plan and
the TDPs impact the Insurers’ potential defenses in any state court coverage action. See Plan Arts.
7.8.1.2, 10.1.1; TDPs Art. 9(v).
The Plan also contains an Exculpation Provision. Plan Art..11.6. Exculpated parties
include: the Debtor, the Estate, the Committee, the Trade Committee and professionals that:
were retained in the Chapter 11 Case by the Debtor, the
[Committee], and the Trade Committee; the officers and directors of
the Debtor that served during the Chapter 11 Case; the members of
the College of Consultors of the Debtor that served during the
Chapter 11 Case; and the members of the finance council of the
Debtor.
Dkt. No. 25 86. The Exculpation Provision further states that none of these parties shall have any
liability for:
any claim to... any other party in interest, for any act or omission
that occurred from the Petition Date through Effective Date in
connection with the Chapter 11 Case, or the filing of the Chapter 11
Case or the formulation, negotiation or pursuit of confirmation of .
this Plan.
Id. However, the Exculpation Provision excludes acts of willful misconduct and gross negligence.
See id.

7 There is no definition of State Court Option in the Plan or the TDPs. The State Court Option is
“described,” in Article 9 of the TDPs, but this description is limited to its availability and certain
aspects of its use. The Court cannot ascertain if the Trust Administrator must pursue a claim de
novo, or by, in effect, appealing the “stipulation of judgment.” Further, the meaning of the
stipulation within the State Court system is not clear.
15

The Plan states the Debtor is not releasing claims against the OCE “related to loans made by
the Debtor to an Other Catholic Entity or accounts receivable from an Other Catholic Entity.” Plan Art.
2.2.97. The Insurers are the only party to file an objection to the Exculpation Provision or Debtor
Release. The Court previously ruled that the Insurers have standing to object to this clause, in its
decision resolving several discovery disputes (the “Discovery Decision”). Dkt. No. 2226.
The Plan also includes a “Judgment Reduction Clause.” Plan Art. 9.3, The clause includes the
following language: “[If] a reduction is not made as described above, then any Contribution Claim
by any Non-Settling Insurer against any of the Settling Insurers shall be reduced by the Reduction
Amount.”
The Court approved the Disclosure Statement on June 20, 2022, and the Plan Proponents
began the solicitation process. Dkt. Nos. 1724, 1818. The Plan was properly noticed and sent to
creditors, which largely supported the Plan. Classes 2-6 voted in favor of the Plan, with a minimum
acceptance level of 97.8%. Dkt. No. 2218 (the “Daloia Declaration”) Ex, A. Classes 7A and 7B
were deemed to reject the Plan and therefore did not vote. Class 8 initially voted to reject the Plan
but the two voting creditors in the class have since settled with the Plan Proponents and have
changed their votes to be in favor of the Plan. See Dkt. No, 3231.
The Trial
The Committee Settlement is mutually exclusive of the Insurance Settlement, and the Plan
Proponents seek approval of their agreement through the Plan. See Dkt. Nos. 1451, 1725, 2476. A
joint trial (the “Trial”) was scheduled to consider approval of the Insurance Motion and
confirmation of the Plan (the “Plan Confirmation”).
The final pretrial order for the Insurance Motion and Plan Confirmation specifies that the
Debtor and the Insurers would each present three witnesses in support of the Insurance Settlement.
Dit. No. 2610. Because of the Plan, the Debtor no longer supports the Insurance Motion. However,

16

the Insurers stepped in to present the case in favor of the Insurance Motion, using the witnesses
the Debtor had previously designated to testify in support of the Insurance Motion. Specifically,
the Insurers called Wilen (originally listed as the Debtor’s witness) as a fact witness as well as
Marc Scarcella; Rory Comiter; and Paul Hinton as expert witnesses. The Insurers did not call any
of their own fact witnesses. The Debtor presented Father Hughes; and Montgomery as fact
witnesses, but only to discuss the Debtor’s asserted changed circumstances. Id. The Committee
called two expert witnesses in opposition to the Insurance Motion, Kathryn McNally and Professor
Tom Baker.
In support of confirmation of the Plan, the Plan Proponents put forth the same fact
witnesses: Father Hughes, Montgomery, and Wilen. Additionally, the Committee called Jeffrey
Prol as a fact witness and McNally, and Carl Salisbury as expert witnesses. The Insurers put forth
the following expert witnesses: Comiter, Hinton, Scott Harrington, Dr. Eileen Treacy, Karen Bitar,
and David McKnight.’ Deposition testimony of several witnesses was also admitted including:
Mathew Dundon IC-001; Paul Finn IC-069 and 75; Michael Hogan IC-087; Patrick McGrory IC-
095; Brent Weisenberg [C-102; Stuart Phillips LMI-1187; and William Curtis LMI-1 196.? The
Trial commenced on October 6, 2022, and after fourteen days of trial, concluded on December 1,
2022.
Father Hughes testified regarding the Debtor’s relationship with the OCE, and that, among
other reasons, the bankruptcy was necessary to avoid mass litigation brought by Survivors against
the Debtor and multiple OCE. See Nov. 9 Transcript, Nov. 10 Transcript. Father Hughes further
testified that the releases and injunctions were essential to the Plan. Nov. 9 Transcript, 96:9-97:25;

8 Although the Insurers listed Scarcella as only a witness for the 9019 Motion, they discussed his
testimony in opposing the Plan. Dkt. No. 3079 at 21, 24, 26, 31-34.
The Court approved designated portions of these depositions by Order dated December 6, 2022.
Dkt. No. 2898.
17

118:21-119:7. Montgomery is the Debtor’s finance officer and served as the secretary for
administration and finance. Nov. 10 Transcript, 102:25-103:16. She testified as to the Debtor’s
annual revenues and expenses. Id. at 114:8-129:5. Montgomery further testified as to the Debtor’s
cash flow projections. [d, at 145:2-9. Wilen is a partner at Eisner, the Debtor’s financial advisor
for the Bankruptcy Case. Nov. 14 Transcript, 8:23-9:2. Wilen testified as to the contributions made
by the OCE to the Plan and the value of their waivers of indemnification and contribution claims.
Id. at 11:21-14:18. Finally, Prol testified regarding the mediation sessions between the Debtor and
the Committee and negotiations over the Committee Settlement and the terms of the Plan and
TDPs. Nov. 16 Transcript, 96:12-24; 107:8-109:21; 117:19-120:2; 124:8-127:25. All of these
witnesses testified credibly.'°
The Plan Proponents and the Insurers put forth several experts to testify regarding the value
of the Survivor Claims and the Insurance Policies. McNally testified with respect to the Survivor
Claims filed and their value. PP-0281 9 25. Salisbury testified as an expert witness on behalf of
the Plan Proponents regarding the Policies, the liability exposure of the Insurers, the potential
coverage defenses, and cost to the Trust of pursuing coverage. PP-0280 { 1. Salisbury testified that
the Policies do not have aggregate limits, nor do they have exclusions for sexual abuse misconduct,
and that under New Jersey law, the Policies could require the Insurers to cover many of the
Survivor Claims, making the Policies very valuable. Id. ff] 17-29, 33-34. However, because
valuation of Survivor Claims is not a basis for distribution under the Plan, nor for confirmation of
the Plan, the Court issues no opinion on the validity of these valuations.

. The Insurers put forth several experts to rebut the Plan Proponents’ experts, or to testify in
their own right to the value of the Survivor Claims and Policies. Scarcella, Comiter and Hinton
each offered testimony in rebuttal to McNally’s valuation of the Survivor Claims, however, as

As discussed in the 9019 Decision, Wilen was not credible as to the issue of valuing the Survivor
Claims, but this did not impact his credibility when testifying about the Plan.
18

explained in the 9019 Decision, each of these experts based their opinions on the flawed valuation
performed by Wilen, and therefore have limited value here. See 9019 Decision. Moreover, as noted
above, so long as the Court finds that the value of the contributions to the Trust made by the Debtor
and OCE is reasonable, there was limited value as to the remainder of this testimony. Hinton and
Comiter both also offered opinions on the value of the Policies, but for much the same reasons,
their testimony also offered little assistance. See LMI-1438-A 410; Oct. 20 pm Transcript.
The Insurers also presented several experts to testify regarding the TDPs and their potential
impact on the Insurers. Harrington testified regarding the potential impact of the TDPs on the
Insurers’ contractual rights and liabilities under the Policies. LMJ-1442 8. Harrington testified
that the Plan would fundamentally alter the contractual relationship between the Debtor and
Insurers. Id. | 49. Specifically, Harrington testified that the Plan improperly assigns the Policies
to the Trust, and the TDPs create an incentive to increase recoveries from Insurers, eliminates
Insurers’ rights including the right to participate in the defense of claims and impairs the Insurers
defenses to coverage. Id. {J 11, 58. Bitar similarly testified that the TDPs eliminate both procedural
and substantive protections of the tort system. LMI-1441. Bitar testified that the TDPs do not have
neutral decision makers, do not lay out criteria for the valuation of claims, and presumes all claims
to be valid. Id. §¥ 7, 10. Hinton similarly observed that there are no criteria for disallowing claims
in the Plan or TDPs, and that in his opinion the valuation procedures were too subjective. LMI-
1438-A 4] 8, 10. Hinton also testified that the TDPs did not ensure that the SIRs would be paid.
Id, 4] 40-44.
Dr. Treacy testified that the TDPs did not adequately prevent against fraudulent claims.
LMI-1440 10. Specifically, Dr. Treacy testified that in order to prevent such claims, the TDPs .
must include an m-person clinical interview and the administration of tests to measure the damages
of any alleged abuse, Id, Finally, McKnight testified regarding the negotiations and drafting the of

19

the TDPs and the economics of the Insurance Settlement. IC-510 9 2. McKnight testified that the
Insurers invested significant resources in negotiating the Settlement and incurred over $2 million
in legal costs due to the Debtor’s bankruptcy. Id. 4 7. However, little if any of this portion of
McKnight’s testimony appears relevant to whether the Plan should be confirmed. McKnight also
testified that the Debtor lost any economic stake in negotiating the terms of the TDPs once the
Debtor and Committee agreed on the economic terms of the Committee Settlement. Id. {{ 10-12.
McKnight further opined that the Debtor’s lack of economic interest, and the small number of
bulable hours its attorneys spent drafting the TDPs in comparison to the Committee’s attorneys,
shows that the Committee drafted with the TDPs without the Debtor being “heavily” involved. Id.
4] 17-19.
On October 22, 2022, the Committee filed the Motion for Judgment, seeking a directed
verdict in the Insurance Motion. Dkt. No. 2667. The 9019 Decision discusses that motion and the
Insurance Motion,
The Insurers’ Adversary Claim
On May 19, 2022, the Insurers filed an adversary complaint (the “Insurers’ Adversary
Claim”) against the Debtor. Adv. No. 22-01123, Dkt. No. 1. The Court subsequently entered orders
allowing the Committee and the Trade Committee to intervene in the Insurers’ Adversary Claim.
Id. Dkt. Nos. 29 and 30. On September 1, 2022, the Court entered an order denying the Debtor’s
motion to dismiss but extended the Debtor’s deadline to file an answer until after a decision on the
Plan. Id., Dkt. No. 32.
The Insurers’ Adversary Claim alleges that the Debtor violated its implied duty of good
faith and breached the Insurance Settlement when it reached the mutually exclusive agreement
with the Committee, Id. Dkt. No. 1. According to the complaint, the Insurance Settlement required
the Debtor to seek entry of a confirmation order for the Fifth Amended Plan. Additionally, the

20

Debtor was required to seek: (1) a finding from the Court that the Insurance Settlement was the
result of long-term negotiations, (2) that the $30 million settlement was good and valuable
consideration, (3) that the Insurance Settlement was necessary to the Fifth Amended Plan, and (4)
was necessary to the success of the reorganization. The Insurers note that the Insurance Settlement
did not contain a “fiduciary out” provision “allowing the Debtor to change its mind and refuse to
seek approval of the [Fifth Amended] Plan based on fiduciary obligations or otherwise.” Id. □ 39.
The Insurers argue that the Debtor breached the Insurance Settlement by entering into the
Committee Settlement, and then failing to seek approval of the Insurance Settlement and Fifth
Amended Plan. The complaint seeks damages not only for the amounts expended by the Insurers‘
in seeking approval of the Insurance Settlement, but also in any amount for which the Insurers are
found to be liable above the $30 million required under the Insurance Settlement. See id. The
Insurers argue that their claim is entitled to administrative expense priority (the “Administrative
Claims”).
Discussion
Section 1129 of the Bankruptcy Code requires the Court to confirm a Chapter 11 plan that
meets certain requirements. In re Trenton Ridge Invs., LLC, 461 B.R. 440, 455 (Bankr. 5.D. Ohio
2011). The Plan Proponents must establish by a preponderance of the evidence that each of the
confirmation requirements in section 1129 has been met. In re Boy Scouts of Am. & Del. BSA,
LLC, 642 B.R. 504, 553 (Bankr. D. Del. 2022), aff'd, 2023 WL 2662992 (D. Del. Mar. 28, 2023);
In re Briscoe Enters., 994 F.2d 1160, 1165 (Sth Cir.1993). The requirements vary depending on
whether the plan is consensual or non-consensual. Trenton Ridge Invs., 461 B.R. at 455. For a
non-consensuai plan, confirmation occurs under section 1129(b) — if the plan meets all of the other
requirements of that subsection with respect to each impaired, non-accepting class and if the plan
satisfies the applicable requirements of section 1129{a) other than section 1129(a)(8). Id. at 458.

21

In this case, there were two classes presumed to reject the Plan, and one class that that
voted against confirmation, however, each of those classes have since either settled, or their claims
would be extinguished as part of the implementation of the Plan as explained above. As such, the ©
Court will review each of the contested elements of section 1129(a) and (b) with respect to the
Plan. .
As noted, the Insurers filed the only objection to the Plan. As a threshold matter, the Court
will review each of the uncontested elements of section 1129, and then will consider the portions
to which the Insurers have standing to, and did, object.
Uncontested Portions of Plan
The Court notes that subsections 1129(a)(6) (approval of rate changes), (14) (domestic
support obligations), and (15) (individual debtors) do not apply, and therefore, are not discussed
below.
A. Section 1129(a)(1)
Bankruptcy Code section 1129(a)(1) requires that “[t]he plan compl[y] with the applicable
provisions of this title.” 11 U.S.C. § 1129(a)(1).!! Courts interpret this language to mean that a
plan must meet the requirements of Bankruptcy Code sections 1122 and 1123. See, e.g., In re
EnviroSolutions of New York, LLC, 2010 WL 3373937, at *2-3 (Bankr. S.D.N.Y. July 22, 2010);
In _G-l Holdings Inc., 420 B.R. 216, 258 (D.N.J. 2009), Sections 1122 and 1123 govern □
classification of claims and contents of a plan, respectively. Boy Scouts of Am., 642 B.R. at 633.
i Section 1122
Section 1122 requires that all claims which are classified together be substantially similar,
which “insures that large claims of differing legal natures do not dictate other claims within a

The Insurers argue that the Plan violates the Bankruptcy Code because it impermissibly transfers
the Debtor’s interest in the Policies to the Trust. This objection is considered in conjunction with
the Insurers related objections that the transfer of the Policies is “forbidden by law” under section
1129(a)(3), below.
22

class.” G-I Holdings, 420 B.R. at 258 (quoting In re Resorts Int’l, Inc., 145 B.R. 412, 447 (Bankr.
D.N.J. 1990)).
Article HI of the Plan separately classifies nine classes of claims: Class 1 contains priority
non-tax claims; Class 2 contains the PNC joan claim(s); Class 3 contains all non-tort general
unsecured claims; Class 4 contains all pension claims; Class 5 contains all known Abuse Claims;
Class 6 contains all unknown Abuse Claims; Classes 7A and 7B include all indemnification and
contribution claims of the OCE; and Class 8 contains all non-abuse tort litigation unsecured claims,
Plan Arts. 3.1-3.3, 5.1-5.9. There are no objections to the classification of claims and because the
division of these claims is based on sound financial rationales, the Plan Proponents have
established by a preponderance of the evidence that the Plan’s classification satisfies section
1122(a).
ii, Section 1123
Section 1123(a)(1) addresses the contents of a plan and requires that a plan designate
classes of claims and interests. 11 U.S.C. § 1123(a)(1). As described above and consistent with
this requirement, Article TI of the Plan adequately classifies the claims and interests.
Administrative claims and priority tax claims do not require designation under Section 1123(a)(1).
In re PC LIQUIDATION CORP., 2006 WL 4567044 (Bankr, E.D.N.Y. 2006). The Plan
Proponents have established by a preponderance of the evidence that the Plan satisfies the
requirements of section 1123(a)(1).
Section 1123(a}(2), (3) requires that a plan specify which classes are unimpaired and the
treatment of.any impaired classes under the plan. 11 U.S.C. § 1123(a)(2), (3). Here, the Plan □

designates which classes are impaired, and specifies their treatment, establishing by a
preponderance of evidence that section 1123(a)(2), (3) is satisfied. Plan Arts. 3.1-3.3, 5.1-5.9.

23

Section 1123(a}(4) provides that a pian shail “provide the same treatment for each claim or
interest of a particular class” unless the holder agrees to a less favorable treatment. The Third
Circuit has concluded that this requirement means that all claimants must have the same
opportunity to recover on their claims. Boy Scouts of Am., 642 B.R. at 636 (citing In re W.R.
Grace & Co., 729 F.3d 311, 327 (3d Cir. 2013)). Here, the Plan provides for the same treatment of
each claim within a particular class, establishing by a preponderance of evidence that section
1123(a\(4) is satisfied. Plan Art. 5.1-5.9.
Section 1123(a)(5) of the Bankruptcy Code provides that a plan must provide adequate
means for its implementation. PC LIQUIDATION, 2006 WL 4567044. Here, the Plan provides
for the establishment and funding of the Trust, and procedures for making distributions to all claim
holders in the Bankruptcy Case. Plan Arts. 7.1-7.4, 8.1-8.4, 12.1-12.12. Further, the Plan provides
for the funding of payments of all claims through ongoing operations. .
Section 1123(a)(6) of the Bankruptcy Code requires a plan to provide for the inclusion in
the charter of the debtor, if the debtor is a corporation, a provision prohibiting the issuance of non-
voting equity securities. PC LIQUIDATION, 2006 WL 4567044. Section 1123{a)(6) of the
Bankruptcy Code does not apply here because the Plan does not propose to issue any non-voting
equity securities. .
Section 1123(a)(7) requires that a plan “contain only provisions that are consistent with the
interests of creditors and equity security holders and with public policy with respect to the manner
of selection of any officer, director, or trustee under the plan... ..” 11 U.S.C. § 1123(a)(7). This
section requires that a plan provide for the manner of selection of any director, officer or trustee
of the reorganized debtor, or any successor to such officer, director or trustee, and such selection
be consistent with the interests of creditors and equity security holders and with public policy.

24

Here, the Plan provides that the Debtor’s officers will not be changed and as discussed
below, all officers and directors of the Debtor are mandated by state law and are consistent with
the interests of creditors. Accordingly, the Plan Proponents established by a preponderance of the
evidence that the Plan satisfies the requirements of Section 1123(a)(7).7
Finally, section 1123(a)(8) involves individual debtors, and so does not apply. See 11
U.S.C. § 1123(a)(8).
The Plan Proponents have substantially complied with the Bankruptcy Code and Rules
provisions regarding disclosure, notice, and solicitation with respect to the Plan, the Disclosure
Statement, and other matters in connection with this Chapter 11 case. As permitted by section
1123(b)(2) of the Bankruptcy Code and Article XII of the Plan, all executory contracts and
unexpired leases not rejected on or before the date of a confirmation order will be deemed assumed
as of the Effective Date. Plan Art. 13. The Debtor has exercised reasonable business judgment in
determining to assume the executory contracts and unexpired leases under the Plan. The
assumption of each executory contract or unexpired lease assumed under the Plan shall be binding
on the Debtor and each non-debtor party to each such executory contract or unexpired lease. Id.
Under section 1123(b)(3) a plan may provide for “settlement of adjustment of any claim .

.. belonging to the debtor or to the estate, or the retention and enforcement by the debtor... of
any such claim.” 11 U.S.C. § 1123(b). The Plan Proponents argue the Plan satisfies this
requirement because the Plan provides that the Debtor or Reorganized Debtor, or the Trust
Administrator, as applicable, shall have the right to pursue objections to Claims. Dkt. No. 3070 at
7-8 (citing Plan Arts. 8.6, 12.12). However, section 1123(b)(3) provides that a plan may provide
!2 The Insurers appear to object to confirmation of the Plan under section 1129(a)(7), however, the
substance of those arguments consider appointment of allegedly conflicted fiduciaries, and do not
refer to the best interest of creditors test. See, e.g., Dkt. No. 3079 at 96, This objection is overruled
as the Insurers lack standing to object on these grounds. Moreover, there are no Directors or
Officers being appointed, so this section does not appear to be applicable, as discussed below in
related section 1129(a)(5).
25

for the settlement or adjustment of any claim or interest belonging to the debtor or to the estate, or
the retention and enforcement of any such claim or interest. See In re TCI 2 Holdings, LLC, 428
B.R. 117, 135 (Bankr. D.N.J. 2010) (citing 11 U.S.C. § 1123(b)(3)(A)) (emphasis added). The
Bankruptcy Court approves any such settlements under the same standard as described in Rule
9019. See In re One2One Comme’ns, LLC, 2016 WL 3398580 at *5 n.7 (D.N.J. June 14, 2016).
However, section 1123(b)(3) applies only to actions “belonging” to the estate, and not to actions
“against” the estate. In re Dynamic Brokers, Inc., 293 B.R. 489, 496 (B.A.P. 9th Cir. 2003). As
such, the Court does not accept the Plan Proponents’ argument. Nevertheless, no party objected to
the Plan on the grounds that it violates section 1123(b)(3) by improperly settling or retaining any
action belonging to the estate, and the Court finds the Plan properly retains or settles all actions
belonging to the estate, excluding those being transferred to the Trust, which are considered below.
Therefore, section 1123(b)(3) is satisfied.
Section 1123(b)(6) states that a plan may include any provision not inconsistent with
applicable provisions of the Bankruptcy Code. See 11 U.S.C. § 1123(b)(6). In this case, the Plan
provides for third-party releases and includes the Exculpation Provision. Plan Art. 11.6; Dkt. No.
2986. The Exculpation Provision is discussed later in this decision.
Regarding the third-party releases, the Plan proposes to release the Survivors’ claims
against the OCE. See Plan Art. 8.8. In In re Continental Airlines, 203 F.3d 203 (3d Cir. 2000), the
Third Circuit considered whether a plan’s provisions enjoining suits against director and officers
was permissible. The court reviewed decisions from other circuits, and ultimately concluded that
the factual record before it was insufficient to meet the “hallmarks of permissible non-consensual
releases — fairness, necessity to the reorganization, and specific factual findings to support these
conclusions .,, .” Id. at 214,

26

Since Continental, “the Third Circuit and courts within the circuit have approved third-
party releases when appropriate and consistent with Continental’s guidelines.” Boy Scouts of Am.,
642 B.R. at 587 (citing United Artist Theatre Co. v. Walton (In re United Artists Theatre Co,), 315
F.3d 217, 227 (3d Cir. 2003); In re Global Indus. Tech., Inc., 645 F.3d 201, 206 (3d Cir. 2011)).
Moreover, the Third Circuit has ruled that a bankruptcy court has statutory and constitutional
authority to enter a final order confirming a plan with non-consensual third-party releases if those
releases are “integral to the restructuring of the debtor-creditor relationship.” In re Millenium
Holdings, U, LLC, 945 F.3d 126 3d Cir. 2019). The Third Circuit noted that the record supported
the conclusion that the releases were critical to the success of the plan and that the released parties
would not have contributed to the plan without receiving releases. Id. at 137.
Further, the Court has authority to grant the releases even though “the Bankruptcy Code
does not explicitly authorize the release and permanent injunction of claims against non-debtors,
except [when resolving asbestos claims.]” Continental, 203 F.3d at 211. However, the court in Boy
Scouts of Am. concluded that sections 1123(a)(5) and (b)(6) provides statutory authority for third
party releases. Boy Scouts of Am., 642 B.R. at 594-95. The Second Circuit reached the same
conclusion in In re Purdue Pharma L.P., 69 F.4th 45 (2d Cir. 2023), cert. granted, --- S.Ct. ---,
2023 WL 5116031 (Aug. 10, 2023). Based upon those decisions, the Court concludes that third-
party releases may be included in a plan.
Having determined that third party releases may be included in a plan, the Court turns to
whether they are fair and necessary to the Debtor’s reorganization. Continental, 203 F.3d at 214.
In Boy Scouts of Am. the court reviewed factors set out in In re Master Mortg. Inv. Fund, Inc.,
168 B.R. 935 (Bankr, W.D. Mo. 1994). In Purdue, the Second Circuit identified a seven-factor
test, which incorporated the Master Mortg. factors. Purdue, 69 F.4th at 78-79. Those factors are
whether: (1) there is an identity of interest between the debtor and the released parties; (2) the

27

claims against the debtor and released parties are factually and legally intertwined; (3) the scope
of the releases is appropriate; (4) the releases are essential to the reorganization; (5) the non-debtors
will contribute substantial assets to the reorganization; (6) the impacted class of creditors has
overwhelmingly voted in support of the plan: and (7) the plan calls for fair payment of the enjoined
claims. Id. As discussed below, after reviewing each of these factors, the Court concludes that the
releases are appropriate.
a. Identity of Interests
Purdue explained that the identity of interests test includes indemnification relationships
that could deplete the estate. Purdue, 69 F.4th at 78, Here, there was substantial evidence to show
an identity of interests. The Debtor and many of the OCE are the insured under the Policies and
the Debtor is required to indemnify the OCE for costs of litigation. See TX-0001-00015, 0471-
0480. In addition, Father Hughes testified that the Debtor and the OCE work together, in their
individual roies to carry out the overall mission of the Catholic Church as a whole. Nov. 9
Transcript, 36:1-56:22. Specifically, Father Hughes testified that the Debtor acts as a resource to
the Parishes, both financial and structural. Id, at 36:1-6. Father Hughes further testified about the
services provided by the OCE, through the schools, cemeteries, Parishes, and other services
provided within the Diocese. Id, at 38:17-41:25. He gave examples of the financial support
provided by the Debtor, including financial aid or tuition waivers, which allow the schools to carry
out their mission of education. Id. at 45:10-47:9. Further, as described above, both Montgomery
and Wilen testified regarding how intertwined the Debtor and OCE are financially, and that the
Revolving Fund “is the Diocesan Bank,” and the Parishes deposit funds in excess of one month’s
operating expense, and the Revolving fund lends money back to the Parishes for capital
expenditures. Nov. 10 Transcript, 13:1-6; Nov. 14 Transcript, 148:2-12. This is similar to Purdue,
where the court noted that the debtor was closely held, and ownership took a significant role in

,28

running the debtor, See id. at 79-80. Therefore, the Court concludes that there is a substantial
identity of interests between the Debtor and the OCE, and this factor weighs in favor of the
releases.
b. The Claims Are Intertwined
The second factor requires the Court to consider whether the claims against the Debtor and
the OCE are factually and legally intertwined. The Survivors’ claims against the OCE are based
on the same facts and law as would be raised against the Debtor. See JX-0048-0410. As a result,
the witnesses and other evidence would largely be the same. Therefore, this factor weighs in favor
of approving the releases.
c. The Releases are Necessary, and their Scope is Appropriate
The third factor, whether the releases are reasonable and scope, and the fourth factor,
whether the releases are necessary, are often considered together, Purdue, 69 F.4th at 80. The court
in Purdue stated that “a release is proper in scope when its ‘breadth’ is ‘necessary to the Plan.’”
Purdue, 69 F.4th at 78. A release is necessary if, “without the releases, ‘there is little likelihood of
[a plan’s] success.’” Id. (quoting Master Mortg., 168 B.R. at 935).
In this case, the release is limited to channeled claims, which are defined in the Pian as:
“all (a) [Survivor] Claims and Indirect Claims, except for any portion of such Claims that are Non-
Settling Insurer Policy Claims; (b) Contribution Claims; (c) Medicare Claims; and (d) Extra-
Contractual Claims relating to the Claims listed in subsections (a)—(c) of above.” Plan Art. 2.2.21.
As noted, the OCE have agreed to waive all contribution and indemnification claims against the
Debtor and the Insurers related to the Survivor Claims in exchange for being released from such
claims by the Survivors. Plan Art. 7.2.2. Montgomery testified that releases were necessary in
order for the OCE to provide their contributions and waivers. Nov. 10 Transcript, 142:13-144:7.
Additionally, the OCE will release their interests in the Policies related to the Survivor Claims.

29

Plan Arts. 2.2.34, 2.2.107, 7.2.3. Moreover, Prol testified that the transfer of the Policies was a
significant portion of the consideration to the Committee. Nov. 16 Transcript, 119:14-25.
In Purdue, the court found the releases were necessary to ensure the trust funds set aside
for the beneficiaries were not depleted. “Otherwise, the Debtors would . . . be required to litigate
indemnity and contribution claims brought against them by the Sacklers, which would likely
deplete the res, no matter the ultimate outcome of those claims.” 69 F.4th at 80. Similarly here,
without these releases, the OCE would not waive contribution and indemnity claims against the
Debtor, and the funds placed in the Trust would be depleted litigating these claims, and possibly
paying out some portion to the OCE on account of these claims. Further, it would not be possible
for the Debtor to transfer its interest in the Policies to the Trust without transferring the OCE’s
interest in those Policies, and the transfer of the Policies was critical to the Committee Settlement.
Additionally, the overall funding is dependent on the OCE’s contributions, and the loans from
DOCT. Finally, the releases are limited to claims related to the Survivor Claims. Given this, the
Court finds the releases are appropriate in scope and necessary to the reorganization,
ad. Substantial Contribution ,

The Purdue court stated that, in evaluating whether the contribution is substantial, the
“orimary focus is on the impact of the financial contribution.” 69 F.4th at 81. In this case, as
described above, the released parties will be contributing $20.25 million. Plan Art. 7.2.2.
Additionally, DOCT will provide the Debtor with annual loans to allow the Debtor to meet its
payment obligations under the Plan. The OCE will be transferring their interests in the Policies
and waiving their claims for indemnity and contribution against the Debtor. Wilen credibly
testified that, when considering both the financial assets being contributed, and the claims and
interests which the OCE were waiving, the contribution was substantial. Nov. 14 Transcript,
159:11-19. The Court agrees.

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e. Overwhelming approval by Creditors
The sixth factor is whether the impacted class of creditors “overwhelmingly” voted in
support of the plan with the releases, Purdue, 69 F 4th at 78 (citing Master Mortg., 168 B.R. at
935). The reference point to define “overwhelming” support for a plan requires approval by a
minimum of 75% of voting creditors of the impacted class to approve the Plan. Id. (citing 11 U.S.C.
§ 524(2)(2)(B)GHTV)(bb)); Boy Scouts of Amer., 642 B.R. at 607. In Boy Scouts, the Court found
overwhelming support where 82.41% and 85.72% of the affected classes voted in favor of the
Plan. Id. at 606, In Purdue, the Court found overwhelming approval where over 95% of the affected
class voted in favor of the Plan, Here, over 97% of the affected creditors approved of the Plan
including the releases, which is more than sufficient to find overwhelming support. Dkt, No. 2218,
Daloia Declaration.
i Fair payment of the enjoined claims
The court in Purdue stated that “we are concerned with the fairness of the payment, as
opposed to the final amount of payment.” Purdue, 69 F.4th at 79. As such, the Court found that
“the determinative question is not whether there is full payment, but rather whether the contributed
sum permits the fair resolution of the enjoined claims.” Id. In that case, the court noted that the
estimated value of the claims far exceeded the amount of money contributed by the Sackler’s, but
that the claimants themselves were treated equally, and the overall settlement was fair and
equitable. Id. at 82.
Similarly here, the value of all the Survivor Claims may exceed the funding within the
Trust. However, the Plan creates an intricate system to resolve each of the Survivor Claims,
ensuring that the Survivors themselves are treated equally and fairly, each awarded points
representing their share of the Trust. TDP Art. 13. Additionally, any proceeds recovered from the
Insurers under the Policies will added to the Trust and distributed on a pro rata basis depending on

31

a Survivor’s total final points awarded and the available funds for distribution. Id. Therefore, the
Court finds the payment to be fair. Because all of the Purdue factors weigh in favor of approving
the third-party releases, the Court concludes that the releases are fair and necessary and comply
with the law.
The remaining subsections of 1123(b) are either satisfied, or not applicable to this case.
Similarly, section 1123(c) applies only to individuals and therefore is not applicable.
B. Section 1129(a)(2)
Section 1129(a)(2) requires that “the proponent of the plan complies with the applicable
provisions of this title.” 11 U.S.C. § 1129(a)(2); G-I Holdings, 420 B.R. at 262 (citing In re PWS
Holding Corp., 228 F.3d 224, 248 (3d Cir. 2000)). Courts interpret this language to require that
the plan proponent comply with the disclosure and solicitation requirements set forth in
Bankruptcy Code sections 1125 and 1126. See. e.g., G-I Holdings, 420 BR. at 262; In re
Johns-Manville Corp., 68 B.R. 618, 630 (Bankr, S.D.N. ¥.1986).
The Plan Proponents have substantially complied with the Bankruptcy Code and Rules
provisions regarding disclosure, notice, and solicitation with respect to the Plan, the Disclosure
Statement, and other matters in connection with this Chapter 11 case.
As noted, the Court entered an Order approving the Disclosure Statement. Dkt. No. 1818.
Thus, the Debtor has established by a preponderance of the evidence that the requirements of
section 1129({a)(2) are met. The Plan was accepted by every class except classes 7A, 7B and 8,
each of which are discussed below. Dkt. No. 2218. The Affidavit of Service of Solicitation
Materials establishes that the Disclosure Statement and Plan were properly solicited. Dkt. No.
2093. .

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Cc. Section 1129(a)(4)
Section 1129(a)(4) of the Bankruptcy Code requires that all payments made or to be made
by the Debtor or by a person issuing securities or acquiring property under the plan, for services
or for costs and expenses in or in connection with the case, or in connection with the plan and
incident to the case, have been approved by, or are subject to the approval of, the court as
reasonable. PC LIQUIDATION, 2006 WL 4567044.
In this case, ail payments made by the Debtor or to be made to professionals retained by
orders of the Court will be subject to review and approval by this Court under section 330 of the
Code. Plan Art. 2.2.54; Disclosure Statement Art. X(f). Further, the Court will retain jurisdiction
to determine all fee applications and any disputes regarding the reasonableness of fees. Plan Art.
XVI(g); Disclosure Statement Art XXI(g). Accordingly, the Plan satisfies section 1129(a)(4) of
the Bankruptcy Code.
D. Section 1129(a)(7)
Section 1129(a)(7), the “best interest of creditors test,” is a protection for individual
creditors whose claims are impaired. Even if voting shows a class has accepted treatment, a plan
may not be confirmed unless each holder of a claim has accepted the plan or
will receive or retain under the plan on account of such claim...
value, as of the effective date of the plan, that is not less than the
amount that such holder would so receive or retain if the debtor were
liquidated under chapter 7 of this title on such date.
Boy Scouts of Am., 642 B.R. at 661.
The Debtor argues that section 1129(a)(7) does not apply to non-profits that cannot be
liquidated. The Court disagrees. The court in Boy Scouts of Am. found that 1129(a)(7) applies to
nonprofits because “there is nothing illogical about requiring a nonprofit to show that it can meet
this requirement in order to obtain the benefits of a confirmed plan.” Id. at 662. A nonprofit can
voluntarily file a bankruptcy case under either Chapter 11 or Chapter 7 or it can look to its state

33

law alternatives. But, to “obtain a discharge in bankruptcy, it must meet all applicable requirements
of § 1129.” Id.
Here, all voting classes supported the Plan by two-thirds in amount and one-halfin number,
Dkt. No. 2218. Further, the OCE have agreed to waive their potential claims in exchange for
releases. Plan Arts. 5.7(c), 5.8(c). Finally, the Liquidation Analysis and credible testimony of
Wilen regarding the Liquidation Analysis established that creditors will receive or retain under the
Plan, on account of such claim, property of a value, as of the Effective Date, that is not less than
the amount that such holder would receive or retain if the Debtor was liquidated under Chapter 7
of the Bankruptcy Code. PP-0420; Nov. 14 Transcript, 25:25-26:15.
The Liquidation Analysis provides that unsecured Creditors would receive, at best, a 3.4%
distribution in a hypothetical Chapter 7 liquidation. PP-0420. The methods and assumptions used
by Wilen in preparing the Liquidating Analysis were not credibly challenged by any party.
Unsecured Creditors would fare worse under the Liquidation Analysis if there was a finding that
the Class 5 Claims are worth more than Wilen’s valuation of approximately $34 million. Id., Nov,
14 Transcript, 25:25-26:15. Under the Plan, unsecured trade claimants will receive a 75%
distribution. Plan Art. 5.3. The exact recovery for Survivor Claimants cannot be known, as those
claims have not yet been valued. However, assuming the Court were to accept McNally’s highest
valuation of $785.1 million, and that the Policies transferred to the Trust have a value of $0, the
$87.5 million cash received from the Trust would still result in a recovery of over 11%. Therefore,
recoveries under the Plan are at least equal to those that would be available if the Debtor was
liquidated pursuant to Chapter 7 and, therefore, the Plan satisfies the requirements of Section
1129(a)(7) of the Bankruptcy Code. PP-0420.

34

E. Section 1129(a}(8)
Bankruptcy Code section 1129{a)(8) provides that “[w]ith respect to each class of claims
or interests (A) such class has accepted the plan; or (B) such class is not impaired under the plan.”
11 U.S.C. § 1129(a)(8). However, if the class is impaired, the court must determine whether the
class has accepted the plan. Boy Scouts of Am., 642 B.R. at 624~25. If it has, the inquiry stops as
to that class. Put simply, in the first instance, the creditors in the class speak for themselves as to
the “fairness” of their treatment. Id.
Classes 1-6 voted in favor of the Plan, and therefore section 1129(a)(8) is satisfied for those
classes. Class 8 voted to reject the Plan, however, the only creditors in Class 8 that cast ballots
have reached a settlement with the Debtor and as part of that settlement have recast their votes in
favor of the Plan. Dkt. No. 3231. This leaves only Classes 7A and B. Although the creditors in
these classes support the Plan, they are presumed to reject the Plan and their votes were not
solicited, and therefore the Court must take another step.
If an impaired class rejects the plan, then the Court must look to section 1129(b). Boy
Scouts of Am., 642 B.R. at 624-25, Section 1129(b)(1) provides that, despite a plan not complying
with section 1129(a)(8), the court shall confirm a plan if “it does not discriminate unfairly” and “is
fair and equitable” to that dissenting class. Section 1129(b)(2) specifies in detail how to determine
whether that standard is met. The court is required to make these findings because the plan is being
“crammed down” over the presumptive wishes of the class. Id.
“Discriminate unfairly” is a horizontal comparative assessment applied to similarly
situated creditors (here unsecured creditors) where a subset of those creditors is classified
separately, does not accept the plan, and claims inequitable treatment under it. In re Trib. Co., 972
F.3d 228, 232 (3d Cir, 2020) (citations omitted). “‘[F]air and equitable’ (a redundant term) should
be pictured vertically, as it ‘regulates priority among classes of creditors having higher and lower

35

priorities.*” Id, (quoting Bruce A. Markell, A New Perspective on Unfair Discrimination in
Chapter 11, 72 Am. Bankr. L.J. 227, 227-28 (1998)). For example, secured creditors are a higher
priority for payment than unsecured creditors. Id.
In this case, Classes 7A and 7B are the OCE, whose claims are impaired because they will
not receive a distribution under the Plan and will waive those claims as a contribution in exchange
for a release from all claims of abuse for which they may be liable. Plan Art, 5.7-5.8, Given that
the claims the OCE are waiving (i.c., claims for contribution and indemnification for liability for
abuse actions) are premised on liability the OCE may face for such claims, the Court finds this
treatment to be both fair and equitable, and not unfairly discriminatory. The OCE will also be
making a payment of $10 million in exchange for releases under the Plan. Moreover, the OCE
support the Plan, showing that they believe the treatment they are receiving is both fair and
equitable, Therefore, this element is satisfied.
F. Section 1129(a\(10)
Section 1129(a)(10) requires that “if a class of claims is impaired under the plan, at least
one class of claims that is impaired under the plan has accepted the plan.” In re Mallinckrodt PLC,
639 B.R. 837, 893 (Bankr. D. Del. 2022). In this case, several Impaired Classes voted in favor of
the Plan, including Classes 2-6 and 8. Plan Art. 4.3; Dkt. No. 2218. Therefore, the Plan Proponents
have established that section 1129(a)(10) is satisfied.
G. Section 1129(a)(12)
Section 1129(a)(12) requires the payment of all fees payable under 28 U.S.C. § 1930.
Mallinckrodt, 639 B.R. at 896. Here, the Plan provides that: “[a]ll U.S. Trustee Fees due and
payable prior to the Effective Date shall be paid by the Debtor on the Effective Date. After the
Effective Date, the Reorganized Debtor shall pay any and all U.S. Trustee [fees] when due and

36

payable.” Plan Art. 4.3 Therefore, the Plan Proponents have met their burden and established that
section 1129(a)(12) is satisfied.
H. Section 1129(a}(13)
Section 1129(a)(13) of the Code requires that the Plan provide for continued, post-
confirmation payments of all retiree benefits at the levels established in accordance with section
1114 of the Code. Mallinckrodt, 639 B.R. at 896. Here, the Plan provides for the continued
payments to the Debtor’s pension plans, which are funded through Class 4 of the Plan. Plan Art.
4,3. As such, the Plan Proponents have met their burden and satisfied section 1129(a)(13).
. I. Section 1129(a)(16)
Section 1129(a)(16) requires that all transfers of property under the plan shall be made in
accordance with any applicable provisions of non-bankruptcy law that govern the transfer of
property by a corporation or trust that is not a moneyed, business, or commercial corporation of
trust. In re Pearl Res. LLC, 622 B.R. 236, 264 (Bankr. 8.D. Tex. 2020). □
Here, all transfers of property under the Plan will be made in accordance with any
applicable provisions of non-bankruptcy law that govern the transfer of property by a corporation
or trust that is not a moneyed, business, or commercial corporation of trust; accordingly, the Plan
satisfies the requirements with section 1129(a}(16).
J. Section 1129(c) .
Section 1129(c) provides that “[i]f the requirements of subsections (a) and (b) of this
section are met with respect to more than one plan, the court shall consider the preferences of
creditors and equity security holders in determining which plan to confirm.” 11 U.S.C. § 1129(c).
In re Trib. Co., 464 B.R. 126, 207 (Bankr. D. Del.), on reconsideration in part, 464 B.R. 208
(Bankr. D. Del. 2011), aff'd sub nom, In re Trib. Media Co., 587 B.R. 606 (D. Del. 2018), affd
sub nom. In re Trib. Co., 972 F.3d 228 (3d Cir. 2020), and affd in part sub nom, In re Trib. Media

37

Co., 587 B.R. 606 (D. Del. 2018), and aff'd sub nom. In re Trib. Co., 972 F.3d 228 (3d Cir. 2020).
As discussed, the Fifth Amended Plan was never solicited and therefore is not before the Court for
approval. Therefore, there is only one plan pending before the Court and so this section is not
applicable.
K. Section 1129(d)
Section 1129(d) of the Bankruptcy Code provides that, on request of a governmental unit,
the court may not confirm a plan if its principal purpose is the avoidance of taxes or the avoidance
of the application of section 5 of the Securities Act of 1933, as amended. PC LIQUIDATION,
2006 WL 4567044. Here, no government entity has objected to confirmation, and the Plan
Proponents have demonstrated by a preponderance of the evidence that the primary purpose of the
Plan is other than to avoid taxes or the application of the Securities Act.
Disputed Portions of the Plan
A. 1129(a)(9) and (11)
“Section 1129(a)(9) generally provides that holders of claims entitled to priority under
section 507(a) of the Code receive payment in full in cash [on the effective date of the plan} unless
the holder of a particular claim agrees to different treatment.” Mallinckrodt, 639 B.R. at 893 (citing
11 U.S.C. § 1129(a)(9)). In this case, the Plan provides for the treatment of administrative expense,
priority tax and other claims entitled to priority under section 507(a)(1)-(8) as required under
1129(a)(9). Plan Art. 4.1-4.4.
However, the Insurers argue that the Plan does not provide for payment of their asserted
Administrative Expenses because the Plan does not create a reserve to pay the full amount of their
potential claims. The Insurers further object to confirmation on the grounds that the Plan is not
feasible because the Debtor lacks the funding to pay the full amount of their potential

38

Administrative Claims, as well as being unable to make payments to the Trust as required under
the Plan.
The feasibility requirement under section 1129(a)(11) of the Bankruptcy Code provides
that a court shall confirm a plan only if confirmation of the plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of the debtor or any successor to the
debtor under the plan, unless such liquidation or reorganization is proposed in the plan. In re W.R.
Grace & Co., 475 B.R. 34, 114 (D. Del. 2012), affd sub nom. In re WR Grace & Co., 729 F.3d
332 (3d Cir. 2013) (quoting 11 U.S.C. § 1129¢a)(11)). However, the test under section 1129(a)(11)
does not require a guarantee of success, merely that there “is a reasonable probability the
provisions of the Plan can be performed.” G-I Holdings, 420 B.R. at 267,
The Court first considers the Insurers’ argument that it is not feasible for the Debtor to
make payments to the Trust required by the Plan, and then whether the Debtor is able to treat the
Administrative Claims as required by section 1129(a)(9).
The Debtor’s recent income was $50.7 million in 2019, $49.5 million in 2020 and $43
million in 2021. Disclosure Statement at 52. The Debtor’s income was impacted by the COVID
pandemic in 2020-21. Id. at 39. The Debtor’s cash flow projections provide for total (unrestricted
and restricted) cash income of $49 million in 2022, $54 million in 2023, $57 million in 2024, $60
million in 2025, and $61 million in 2026. PP-0419. The Plan requires an initial $29.75 million
transfer to the Trust on the effective date, comprised of $14.75 million from the Debtor and $15
million from DOCT. Plan Art. 7.2.2. Additionally, the Plan requires the Debtor to make a $10
million payment at the end of each of the first three anniversaries and a $7.5 million payment at
the end of the fourth year after the effective date. Id,
The Insurers argue the Plan is not feasible for several reasons, chief among them, that
neither the Debtor, nor DOCT can afford to make the payments required under the Plan. Dkt. No.

39

3079 at 172-77. The Insurers initially argue that the Debtor’s cash flow projections are not
supported and show large unexplained increases in income without justification. Id. at 175. The
Insurers also, and seemingly inconsistently, argue that the Debtor’s cash flow projections are
premised on additional loans from DOCT that are not provided for in the Plan, and the cash flow
projections are unrealistic without these loans being made. Dkt. No. 3079 at 171-72.
As to the reasonableness of the cash flow projections, the Debtor’s income was reduced in
2020-22 due to COVID and the accompanying lockdown. PP-0226 9. It is reasonable that as the
lockdown ends and the fears associated with COVID subside, participation in Church services will
increase as will donations. Further, the prior year’s income shows a steady increase in charitable
donations by parishioners since COVID has largely passed, providing support for the
reasonableness of future cash flow projections. Dkt. No. 1724. Finally, Montgomery credibly
testified as to the reasonableness of the cash flow projections. Nov, 10 Transcript, 145:7-146:25.
She further testified as to the significant real property and other assets the Debtor has available to
liquidate if necessary to make up for any shortfall. Id. at 147:1-5. As to the issue with DOCT
making loans, the Insurers point out there is no provision in the Plan or the Disclosure Statement
requiring DOCT to make these loans to the Debtor, however, DOCT’s release is dependent upon
the Plan being consummated, and therefore, DOCT has a vested interest in ensuring that happens.
As such, the Court finds the Plan Proponents have met their burden under 1129(a)(11).
The Insurers next argue that DOCT cannot make the loan distributions, along with its other
financial obligations without violating the requirement to maintain 200% of the PNC Loan balance
in its accounts, Dkt. No. 3079 at 174-75. The Insurers argue that DOCT is required to make its
own $10 million contribution to the Trust and also to lend the Debtor: (1) $14.75 million for the
Initial Contribution, (ii) $12 million in DIP financing, and (iii) $37.5 million to assist the Debtor
in funding its contributions to the Trust, for a total of $74.25 million. Id. The Insurers argue that

40

the Debtor has presented evidence that the current balance in DOCT is $110 million. Once the
$74.25 million is removed, DOCT will be left with $35.75 million. See id. As noted above, this
argument is not based on facts presented at Trial, as there was no evidence or testimony to support
either that DOCT is required to maintain 200% of the balance of the PNC in its accounts, nor that
DOCT was lending the Debtor $12 million as part of a DIP financing agreement (the “DIP Loan”).
The Insurers cite to a certification filed after the Trial as part of a separate motion. See Dkt. No.
3079 at 374-75 (citing Dkt. No. 2919). This objection could be overruled on those grounds alone,
but even if the Court accepts the allegations and the figures put forth by the Insurers, there are still
flaws in this argument.
The Insurers’ argument that DOCT cannot make these $10 million loans without violating
the capital requirements for the PNC Loan is premised on the finances of DOCT and the Debtor
remaining static over the next several years, which is not plausible. As noted, DOCT currently has
approximately $110 million in funds; after its contribution to the Trust and the loans it must make
to the Debtor through the DIP Loan and the Initial Contribution, it still is projected to have over
$70 million. See Dkt. No. 3079 at 174-75; Nov. 14 Transcript, 37:1-3. Even taking the Insurers’
argument and their figures at face value, DOCT would not be in any danger of its funds falling
below the 200% threshold mandated by the PNC Loan agreement until year 5. See id. During that
time, the Debtor expects to make its required payments on the PNC Loan, reducing the balance,
and therefore the capital reserves DOCT is required to maintain. See PP-414; Nov. 10 Transcript,
135:22-137:17; Dkt. No. 3079. In fact, under the Debtor’s projections, by year 5, DOCT will only
be required to maintain $36 million in reserve. Dkt. No. 3079 at 175. Therefore, even assuming
that DOCT does loan the Debtor a total of $74.25 million, as the Insurers argue it must, that would
leave $35.75 million in reserve at the time DOCT funds the final $7.5 million. In the intervening
years it is reasonable to assume that DOCT will continue to invest its funds, growing the principle

4}

to make up the shortfall that would exist at that time, or that the Debtor could renegotiate the terms
of the PNC Loan to alter the capital reserve requirements. As discussed, section 1129(a)(11) does
not require a guarantee of success, only that there “is a reasonable probability the provisions of the
Plan can be performed.” G-J Holdings, 420 B.R. at 267. The Court finds it is reasonably probable
that DOCT will be able to loan the required funds to the Debtor and maintain the capital reserves
required under the PNC Loan.
The Insurers next argue that the Plan is not feasible because the Debtor will not be able to
pay the Administrative Claims asserted by the Insurers on the effective date, and that the Debtor
must maintain a “reserve” sufficient to satisfy those administrative claims for the Plan to be
feasible. Dkt. No. 3079 at 182. The Administrative Claims are based on the Debtor’s alleged
breach of the Insurance Settlement, which the Insurers argue caused them to incur additional fees
and costs to advocate for the Insurance Settlement once the Debtor withdrew its support. Id. The
Insurers argue that Insurance Settlement did not include a “fiduciary out” provision, and so the
Debtor was not permitted to back out of the agreement based on its obligations to the estate. The
Administrative Claims are for an unspecified amount, but the Insurers argue the claims total at
least $2.4 million and could be as much as $123.5 million. See Dkt. No. 3079 at 182-85 (citing IC-
510 (the “McKnight Declaration”)). The amount is based on analysis detailed by McKnight, who
stated that between September of 2021 and April 2022, “the Insurers incurred $2.4 million in legal
fees and professional costs related to the Debtor’s Bankruptcy [Case].” McKnight Declaration §
7. This amount includes costs of hiring experts to testify in support and counsel fees to argue in
Furthermore, it appears that the Insurers only considered the $12 million of additional debt in
their argument - they did not reduce the administrative expenses which were paid from the DIP
Loan proceeds. See Dkt. Nos. 2841, 2919. The $12 million DIP Loan was not included in the
Debtor’s projections because the DIP Loan was made after the Trial. See PP-0419. It appears that
if the $12 million were added to Cash Sources, the Debtor would not be required to draw down on
cash on hand. See Dkt. No. 2841; PP-0414, As such, it is likely the Debtor would have additional
cash at the end of the final year to reduce the PNC Loan balance or pay back a portion of the loans
from DOCT.
42

support of the Insurance Motion at trial. Id. 7; Dkt. No. 3079 at 183. Hinton similarly testified as
to the amount of money expended supporting the Insurance Settlement. Nov. 30 Transcript, 97:25-
98:6. As further support, the Insurers submitted fee statements (the “Fee Statements”) that were so
heavily redacted making it impossible to determine what was done, for how long, or at what rate.
See IC-511-517. Finally, the Insurers argue the Administrative Claim includes any amount of
liability they face on Survivor Claims above the $30 million agreed to in the Insurance Settlement.
Dkt. No. 3079 at 183. This amount could be as much as $94 million according to Hinton. Hinton
Declaration § 15.
Initially, the Court questions whether the Debtor is required to support an agreement that
is not in the best interest of the estate because it did not contain a “fiduciary out.” “[I]t is
‘Bankruptcy 101’ that a debtor and its board of directors owe fiduciary duties to the debtor's
creditors to maximize the value of the estate, and each of the estates in a multi-debtor case.” In re
Innkeepers USA Tr., 442 B.R. 227, 235 (Bankr. S.D.N.Y. 2010). In that case, the debtor had
entered into a sale agreement which included a fiduciary out allowing the debtor to take any action,
including a decision to terminate the agreement, if it determined such action was necessary to
fulfill its fiduciary obligations under applicable law. Id. However, there was an exception, stating
that the fiduciary out did not apply to any decision to “annul, modify, amend, or otherwise alter”
any portion of the agreement, unless doing so in “pursuit of an alternative transaction that will
provide [the other party] with a higher and better recovery” than that proposed under the sale
agreement. The court found that the language in this contract “prevents the Debtors from electing
to fully exercise their fiduciary duties to maximize the value of [the estate].” Id. at 235. The Court
finds this reasoning applicable here. The Insurers argue that, because the Insurance Settlement
contains no specific language about the Debtor’s fiduciary obligations, the Debtor should be barred
fulfilling those obligations even if another deal is proposed which would increase the value

43

of the estate. Adopting such reasoning would essentially permit a debtor to contract away its
fiduciary obligations. As such, and without making any determination as to the Insurers Adversary
Claim at this time, this argument does not persuade the Court that the Plan is not feasible.
More significantly, the Insurers have not established that the amount of the Administrative
Claim would be large enough to render the Plan infeasible. The Fee Statements submitted for
review were heavily redacted, making it impossible for the Court to determine which tasks were
being charged, the reasonableness of those tasks, or the extent to which they were related to the
Insurance Settlement or other aspects of the Bankruptcy Case, or whether they were tasks the
Insurers would have otherwise incurred in support of the Insurance Settlement regardless of the
Debtor’s conduct. See IC-511-17. Moreover, under New Jersey law, damages resulting from a
breach of contract are limited to damages that are a foreseeable consequence of the breach
committed. Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton & Co. L.L.C., 191 NJ. 1,
14 (2007) (citing Donovan v. Bachstadt, 91 N.J. 434, 445 (1982)), Because the Insurers took an
active role supporting the Insurance Motion, they would have incurred much of these costs
regardless of the Debtor’s alleged breach, and so these costs are not compensable because they are
not a consequence of the alleged breach. For example, the costs of the experts that the Insurers
retained prior to the Debtor’s alleged breach, and the amounts spent preparing those experts for
trial are likely not compensable, as the Insurers would have incurred those costs regardless of
whether the Debtor supported the Insurance Settlement.
In this case, both McKnight and Hinton testified as to the total fees and costs the Insurers
incurred that were “related to the bankruptcy proceedings,” but failed to specify which, if any were
a consequence of the Debtor’s alleged breach. See McKnight Declaration { 7. Similarly, the Court
questions the value of McKnight’s analysis, since it was limited to costs and expenses incurred

44

from September 2021 through April 2022, prior to the Debtor’s alleged breach.'4 For example,
McKnight includes Comiter’s fees of $355,500, however, Comiter was hired and her report was
filed March 9, 2022, prior to the Debtor allegedly breaching and withdrawing its support for the
Insurance Settlement. See Dkt. Nos. 3079 (“the Debtor took no further actions to prosecute the
9019 Motion following April 11.”) and 1453-27. Similarly, Scarcella’s expert report was also filed
Match 9, 2022, prior to the Debtor’s alleged breach. Indeed, the original trial date for the Insurance
Motion was April 6, 2022. These costs were incurred prior to the Debtor’s alleged breach
therefore, are not a foreseeable consequence of that breach, as they would have been incurred even
assuming the Debtor had fully performed under the Insurance Settlement. While the Court is not
making any decision on the Insurers’ Adversary Claim, it is required to determine the probability
of the Debtor’s ability to pay the Administrative Claims, and based on the facts presented at the
Trial, the Court does not find it probable that the Administrative Claims will be as high as the
Insurers argue.
Finally, the Insurers’ argument that the Administrative Claims will include all amounts for
which the Insurers are held Hable above the $30 million agreed to in the Insurance Settlement is
similarly problematic. As explained in the 9019 Decision, the Court did not approve the Insurance
Settlement based upon a failure of the Insurers and the Debtor to meet their burden under either
Rule 9019 or section 363 of the Bankruptcy Code. See 9019 Decision. Although the Insurers may
argue that this was due to the Debtor’s failure to support the Insurance Settlement, the Court notes
that both Comiter’s and Hinton’s expert reports were completed in March, prior to the Original
Trial Date of April 6, 2022, and the Debtor’s alleged breach did not occur until after that date. See

14 The Insurers appear to argue that the entire process of negotiating the Insurance Settlement was
ruse and the Debtor never intended to support it. Dit. No. 3079 at 135-137. However, the Insurers
have not provided support for this, and the testimony of Father Hughes, describing the Debtor
commitment to mediation and the Insurance Settlement was credible. Nov. 9 Transcript, 73:1-
76:25, 117:15-25.
45

Dkt. No. 1219. As noted, the Court does not make any findings regarding the legitimacy or extent
of the Administrative Claims, which will be decided in the Insurer’s Adversary Claim. The Court
is merely evaluating the probable success of the Plan if confirmed based upon the evidence
presented at Trial. The Insurers may have Administrative Claims, but the amounts of those claims
were not established by the evidence presented at Trial and appears likely to be significantly less
than the $2.4 million the Insurers allege. Based on this finding, and the Debtor’s significant assets
in cash reserves,)> real estate, and other holdings, the Court finds it probable that the Debtor will
have sufficient funds to pay the Administrative Claims as required by section 1129(a)(9), and that
while success is not guaranteed, the Plan Proponents have met their burden of proof to show that
the Plan is feasible under section 1129(a)(11).
B. Section 1129(a)\(5)
Sections 1129(a}(5) and 1123(a)(7) of the Bankruptcy Code require the proponent of a plan
to disclose the identity and affiliations of any individual proposed to serve, after confirmation, as
a director, officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint
plan with the debtor or a successor to the debtor under the plan, and to show that the appointment
to, or continuance in, such office of such individual is consistent with the interests of creditors and
equity security holders and with public policy. Section 1129(a)(5) also requires disclosure of the
identity of any insider that will be employed by the reorganized debtor, and the nature of any
compensation for such insider. PC LIQUIDATION, 2006 WL 4567044.
In this case, the directors and officers the Debtor are mandated by state law. Under N.J.S.A.
§ 16:15-10, the five trustees of the Debtor are the Bishop, the Vicar General, the Chancellor, and
two priests of the Diocese whom they elect. PP-0266 | 3. The Plan discloses that the Board of
Trustees will not change following confirmation of the Plan. Moreover, to the extent applicable,

Wilen testified that the Revolving Fund’s balance was $74 million as of November 2022. Nov.
14 Transcript, 13:9-10.
46

the Plan Proponents have properly and adequately identified the members of the TAC and the
Trust Administrator as the parties that will govern the Trust. Dkt. No. 2006. Appointment of those
individuals is consistent with the interests of Survivors because the members of the TAC are the
current Committee members who have knowledge of the case and will continue to act in the
interests of Survivors.
The Insurers object under sections 1129(a)(5) and 1123(a)(7).'° Specifically, the Insurers
argue that the Trust fiduciaries are conflicted, that Dundon and Finn both fail the disinterested test,
and under the TDPs have too much discretion. Dkt. No. 3079 at 96-97. This is particularly the case □
where the Trust Administrator and the Abuse Claims Reviewer have influence in the valuation of
Survivor Claims. Id, The Insurers argue that Dundon has ties with the Committee’s attorneys,
plaintiffs attorneys, and acts as advisor to claimants in other mass tort cases. IC-001 at 94:22-
95:14; 136:6-10. Similarly, the Abuse Claims Reviewer, Finn, acknowledged prior relationships
with a number of the firms representing Survivors in this case, [C-069 at 101:24-103:7.
The Insurers lack standing to object on these grounds, as this Court detailed in the
Discovery Decision. Dkt. No. 2226. However, to be thorough, the Court considers the merits of
the Insurers’ position. This issue was addressed in Boy Scouts of Am., which noted that “[s|ections
1123(a)(7) and 1129(a)(5) do not apply to members of a trust advisory committee particularly in a
case, such as this one, where the debtor is reorganizing and will emerge post-confirmation.” 642
at 640. However, the court went on to find that “to the extent that a trust advisory committee
with veto powers exercises them to prevent a trustee from fulfilling her duties, that trustee must be
able to petition the court for appropriate relief.” Id. (citing In re Eagle-Picher Indus., Inc., 203 B.R.
256, 268 (S.D. Ohio 1996)). The court further noted that several revisions had been made to reduce

‘6 The Insurers cite to section 1129(a)(7), and not section 1123(a)(7). See Dkt. No. 3079 at 96.
However, based on the content of the arguments made, it appears the Insurers’ objection was on
the grounds listed under section 1123(a)(7).
47

the control or authority the trust advisory committee held over the trustee. Id. at 643. The trust
advisory committee in Boy Scouts of Am., originally had veto power over the selection of the
neutral, but that was removed and left in the sole discretion of the trustee. Id. The advisory
committee also lost veto power over many other provisions, including employment of outside
professionals and the questionnaires to be given to claimants. In the end, the court found the
remaining authority the trust advisory committee held over the trustee was limited and not such
that it would improperly constrain the trustee and that the trust advisory committee’s powers now
“more accurately comports with its name — settlement trust advisory committee.” Id. The court in
Boy Scouts of Am. thus overruled the objections raised on these grounds. Id.
The Court agrees with the analysis in Boy Scouts of Am. and finds it equally applicable
under these facts. As the TDPs are laid out in the Plan, the TAC would have significant authority
and power over the Trust, the Trust Administrator, and the Neutral. However, as explained above,
the Trust Administrator and Claims Reviewer do not directly impact the rights of the Insurers but
can only impact the rights of the Survivors. Further, the Revised Confirmation Order states that
the Trust Administrator is “authorized to... appear and be heard before the Bankruptcy Court on
all matters relating to the Chapter 11 Case.” Dkt. No. 2586 at 9. Additionally, the Survivors whose
claims are determined under the TDPs have not objected, and the Plan was accepted by over 97%
of the Survivors. Dkt. No. 2218, Daloia Declaration. As such, the Court finds that the members of
the TAC are not subject to the provisions of section 1129(a)(5)(A)(i), and to the extent they are,
the Plan provisions are consistent with the requirements of the Bankruptcy Code.
However, the Neutral may have a significant impact on the Insurers’ rights as the Neutral
will set the value of the Survivor Claims prior to the Trust seeking coverage from the Insurers. As
such, in order for the Neutral to live up to its title and truly be neutral, the TAC cannot have
influence over the Neutral. The Revised Confirmation Order requires that appointment of the

48

Neutral shal! be by motion of the Trust Administrator and is subject to Bankruptcy Court approvai.
Id. at 10. However, the Court finds the standards laid out in the Revised Confirmation Order do
not go far enough, and while Court approval is proper, at a minimum, the selection must be made
either together with the Insurers, or at this Court’s discretion after input from interested parties.
For this reason, the Plan cannot be confirmed.
C. Section 1129(a)(1) and (3)

Section 1129(a\(3) provides that the court shall confirm a plan only if “[t]he plan has been
proposed in good faith and not by any means forbidden by law.” PWS Holding Corp., 228 F.3d at
242 (quoting 11 U.S.C. § 1129(a)(3)). The Court will first consider whether the Plan violates the
Bankruptcy Code or state law, and then will consider the good faith requirements.
i. Transfer of the Policies
Initially, the Insurers object on the grounds that the transfer of the Policies under the Plan
violates both the Bankruptcy Code and the state law. Dkt. No. 3079 at 66, The Insurers argue that,
whether selling the Policies under section 363 of the Bankruptcy Code, or assigning them under
section 365, the Bankruptcy Code does not allow a debtor to transfer the beneficial aspects of a
contract without transferring its corresponding obligations. Id. at 70. Specifically, the Insurers
argue that the Plan is attempting to transfer the right to recover under the Policies to the Trust,
without transferring the obligations remaining in the Policies, specifically referencing the
obligation to defend against any claims, and to pay the SIRs for any claims. Id. at 71. Moreover,
the Insurers argue that, in this case, section 365 of the Bankruptcy Code must govern, because the
contracts are executory, as the Debtor’s duty to defend against claims, pay the SIR amounts and
comply with other portions of the Policies are material obligations under the Policies. The Insurers
argue the Debtor has not provided adequate assurance of the Trust’s performance of these and

49

other obligations as required by section 365 of the Bankruptcy Code, and therefore the Plan is not
confirmable under section 1129(a)(1). Id. at 72.
The Court has already established that the Policies are property of the estate. “Under the
Bankruptcy Code, if a contract is not executory, a debtor may assign, delegate, or transfer rights
and/or obligations under section 363 of the Bankruptcy Code, provided that the criteria of that
section are satisfied.” In re Boy Scouts of Am. & Delaware BSA, LLC, 650 B.R. 87, 144(D. □□□□
2023) (quoting Boy Scouts of Am., 642 B.R. at 668) (quoting In re Am. Home Mortg., 402 B.R.
87, 92-93 (Bankr. D. Del. 2009). In circumstances similar to this case, the court in Boy Scouts of
Am., found that the Bankruptcy Code permitted the debtors to “transfer their property rights
consistent with applicable state law.” 642 B.R. at 668. As such, to the extent section 363 of the
Bankruptcy Code is applicable, the assignment of the Policies does not violate the Bankruptcy
Code.
This Court finds that the that the Policies in this case are not executory. The “obligations”
discussed by the Insurers do not render the Policies executory. Regarding the Insurers’ argument
that the Debtor’s duty to defend renders the Policies executory, there is significant caselaw
indicating that this is not the case. See Riley v. Mut. Ins. Co. Ltd., 2019 WL 9596537, at *8 (ELD.
Pa. Jan. 8, 2019). “Several courts have held that an insured’s unfulfilled duty to defend under an
insurance policy does not render the policy executory.” In re Ames Dep’t Stores, Inc., 1995 WL
311764, at *1, 3-4 (S.D.N.Y. May 18, 1995) (insured’s obligation to defend claims within the
$50,000 deductible did not make the policy executory); In re Fed, Press Co., Inc., 104 B.R. 56, 62
(Bankr. N.D. Ind. 1989) Gnsured’s obligation “to defend matters brought against it which are
covered by the policies” did not make policies executory). Similarly, there is caselaw finding that
payment of the SIRs are not prerequisites to the Insurers obligation to pay, and instead merely set
a floor on the claim amounts below which the Insurers have not agreed to make any payments. See

50

Fed. Press, 104 B.R. at 63 (Under Indiana law, injury victims may “recover under a valid insurance
policy from the insurer itself in the event the insured is unable to pay due to its insolvency or
bankruptcy.”); Inre FF Acquisition Corp., 422 B.R. 64, 67 (Bankr. N.D. Miss. 2009) (The debtor’s
ongoing obligation to fund the SIR did not make the policy an executory contract, insofar as
providing a defense is concerned.).
Further, even assuming that the Policies are executory, the Court finds that the Plan
Proponents have provided adequate assurance of performance, in that the Trust will have sufficient
funding to pay any defense and SIR costs. Moreover, as is discussed in the Insurance Neutrality
section below, there is adequate assurance of future performance, because neither this nor any
other plan can be confirmed unless the Insurers rights and defenses are preserved, including any
defense related to the insured’s failure to perform its obligations under the Policy. Therefore, the
transfer of the Policies is permissible under section 365 of the Bankruptcy Code.
However, regarding the Insurers’ objection that the transfer of the Policies violates New
Jersey law, the issue is more complicated. There are dozens of Policies, the terms of which are not
uniform, issued by multiple Insurers. The court in Boy Scouts of Am., was faced with a similar set
of facts, and determined that it was appropriate to approve the transfer under the Bankruptcy Code,
but to allow another court in the future to determine on a case-by-case basis, whether the transfers
were permissible under state law given the debtors remaining obligations under the contract. 642
B.R. at 669. “Each contract will need to be interpreted under applicable law in the context of a
specific dispute. All I can hold today is that, in the first instance, state law will determine that
question.” Id, “If the obligations are conditions precedent, then the Non-Settling Insurance
Companies may be able to assert those conditions as a defense to performance.” Id. This appears
appropriate to this Court, given the number of Policies in question, and the fact that each claim for

51

coverage may have to be litigated individually according to its specific terms, and the specific facts
of each claim.
Similarly, the Court finds that the Insurers are correct in their argument that this Court
lacks jurisdiction to order or approve the transfer of the OCE’s interest in the Policies, because the
Court’s jurisdiction is limited to property of the Debtor, or the estate. 11 U.S.C. § 541. Therefore,
the Court does not rule on the transfer of the OCE’s interests in the Policies, and the parties are
free to raise this matter before a state court at the appropriate juncture. Instead, the Court merely
finds that the Plan provisions do not violate the Bankruptcy Code, and therefore do not make the
Plan unconfirmable, but this Court has no jurisdiction over OCE property, including its interest in
the Policies.
i. Good Faith
“TF jor purposes of determining good faith under section 1129(a)(3) .. . the important point
of inquiry is the plan itself and whether such a plan will fairly achieve a result consistent with the
objectives and purposes of the Bankruptcy Code.” In re Abbotts Dairies of Pennsylvania, Inc., 788
F.2d 143, 150 n.5 (3d Cir.1986)}. The court estimates whether the plan (1) fosters a result
consistent with the Bankruptcy Code’s objectives; (2) has been proposed with honesty and good
intentions and with a basis for expecting that reorganization can be effected; and (3) exhibits a
fundamental faimess in dealing with creditors. Boy Scouts of Am., 642 B.R. at 645 (citing W.R.
Grace, 475 B.R. at 87-88.) The burden of proof is on the Plan Proponents. See In re Tamecki, 229
F.3d 205, 207 (3d Cir, 2000).
The court in Boy Scouts of Am. comprehensively reviewed the requirements of good faith
under section |129(a)(3) in a factual scenario similar to this case. 642 B.R. at 645. The court noted
that “[g}]ood faith is shown when the plan has been proposed for the purpose of reorganizing the
debtor, preserving the value of the bankruptcy estate, and delivering value to creditors.” Id.

52

(quoting Inre Emerge Energy Servs. LP, 2019 WL 7634308, at *16 (Bankr. D. Del. Dec. 5, 2019)).
However, a court may determine a plan is not filed in good faith if it is the result of collusion, or
allows for breach of fiduciary duty. Id. (citing Inre Am. Cap. Equip., LLC, 688 F.3d 145, 158 Gd
Cir. 2012), In re TCI 2 Holdings, LLC, 428 B.R. 117, 143 (Bankr. D.N.J. 2010)}. Ultimately
though, “denial of bankruptcy relief based on a lack of good faith ‘should be confined carefully
and is generally utilized only in. . . egregious cases.’” Id. (quoting In re Falch, 450 B.R. 88, 93
(Bankr. E.D, Pa. 2011)).
The history of this case, discussed above, shows that there has been considerable acrimony
between the parties, and the docket is replete with evidence of the disputes between the Committee,
the Insurers and the Debtor against each other. Among others, Pro] testified as to the objections
raised by the Debtor to the Committee’s fees and attempts to retain experts, He also testified about
the Committee’s objections to the Debtor’s proposed bar date and attempts to bring sanctions
against the Debtor. Nov. 16 Transcript, 95:10-96:11; 98:24-99:7. The Plan is the result of months
of mediation sessions and negotiations, some of which this Court attended, and evidence of which
has been provided through the credible testimony of, among others, Prol, Wilen, Hughes, and
Montgomery. Each witness testified as to the number of mediation sessions, and while his or her
involvement in those sessions varied, Prol gave details on the seventeen mediation sessions
between the parties, their initial positions and how they eventually came to resolution. Nov. 16
Transcript, 96:14-24; 104:22-105:23; 113:11-19; 114:19-116:16. Prol also testified as to the
negotiations between the Plan Proponents over the non-monetary terms of the Plan, including the
terms of the TDPs and Trust fiduciaries. Id. at 116:13-120:2; see also Weisenberg Dep. Transcript,
83:22-58:6. The resulting Plan is supported by all classes of creditors, including over 97% of the
Survivors. Dkt. No. 2218 Daloia Declaration. The Plan allows the Debtor to continue operating

53

while satisfying all creditors. As such, the Court finds that the Plan Proponents have presented
sufficient evidence that the Plan preserves the value to the estate and delivering value to creditors.
The Court finds that the Plan was proposed with honesty and good intentions as a basis for
expecting that reorganization can be effected and exhibits a fundamental faimess in dealing with
the creditors. See Boy Scouts of Am., 642 B.R. at 645. However, due to significant problems with
the terms of the Plan itself, discussed below, the Court cannot find that the Plan fosters a result
consistent with the Bankruptcy Code’s objectives and cannot confirm the Plan under section
1129(a)(3).
The Insurers raise multiple objections arguing that the Plan does not comply with section
1129(a}(3) of the Bankruptcy Code. The majority of these objections argue that the second prong
of the good faith test has not been met because the Plan Proponents conduct amounts to bad faith
and therefore precludes a finding that the Plan was proposed with honesty and good intentions.
However, the Insurers also argue that the Plan itself, along with the TDPs create an inherently
biased result that will not foster a result consistent with the Bankruptcy Code’s objectives. Dkt.
No. 3079. The Court first considers those objections that argue the conduct of the Plan Proponents
bars a good faith finding, and then considers the Plan itself.
The Insurers initially argue that the Plan Proponents have not presented any evidence of
good faith, and because the burden is on the proponent, the Plan cannot be confirmed. Id. at 133.
The Insurers argue that none of the Debtor’s witnesses had personal knowledge of the mediation
sessions or the negotiations for the TDPs, See id, However, as detailed above, the record has more
than sufficient evidence of good faith as defined by the Third Circuit. See Boy Scouts of Am., 642
B.R. at 645. Hughes and Montgomery both testified credibly as to the Debtor’s intent in filing
bankruptcy, its conduct and intentions during the Bankruptcy Case and the mediation sessions. See
Nov. 9 Transcript, 65:9-19; Nov. 10 Transcript, 132:9-18. Hughes also testified that he spent over

54

100 hours in mediation over seventeen sessions. Nov. 9 Transcript, 67:8-76:25. Montgomery
testified as to negotiations with other parties including the Trade Committee and PNC. Nov. 10
Transcript, 134:15-20. Further, Prol’s testimony described above was credible evidence of the
Debtor’s good faith conduct through the Bankruptcy Case, in particular as it relates to the
mediations and the negotiations over the settlement with the Committee, the Plan, and
accompanying Trust and TDPs. As such, the Insurers objection on this issue is overruled.
The Insurers next argue that the Debtor has demonstrated bad faith conduct throughout the
Bankruptcy Case. Dkt. No. 3079 at 135. Specifically, the Insurers object to the Debtor’s breach of
the Insurance Settlement, arguing that the Debtor never intended to honor that agreement, instead
using it only to obtain leverage over the Committee. Id. at 135-37. This argument is not persuasive.
The Insurers presented no evidence to support their claim, other than the timeline of events that
ignores facts that do not fit with their theory. The Insurers specifically refer to the testimony of
Father Hughes, arguing that he “reversed” his testimony from his deposition to trial. At his
deposition, Father Hughes stated that the Insurance Motion was before the Court that that “[i]f the
Judge determines that that is the direction that it will go, then we will support it.” The Insurers □□
claim Father Hughes reversed himself at trial when he testified that the Debtor “would prefer the
eighth amended plan.” Id. at 138. There is nothing inconsistent in these statements, and the Court
does not find this to be evidence of the Debtor “shroud[ing] its position” or acting in an “oblique”
manner as the Insurers insist. Instead, the Court concludes that the Debtor took a practical strategy
hoping to complete the bankruptcy process as quickly and inexpensively as possible, that it would
accept and move forward with whichever settlement the Court approved, although it prefers one
over the other. Moreover, the vast majority of the credible evidence simply does not support the
Insurers’ theory. There was nothing clandestine about the mediation sessions with the Committee,
and those negotiations were discussed openly at many hearings in the Bankruptcy case.

55

Furthermore, as stated previously, Prol’s testimony was credible, and shows that the Committee
Settlement was the result of months of intense and at times hostile negotiations, and while the
Insurance Settlement, along with several unfavorable decisions!’ by this Court, may have made
the Committee more willing to negotiate along less rigid terms than it initially demanded, it is not
evidence that the Debtor acted in bad faith.
The Insurers also argue that the Debtor acted in bad faith by “ceding the pen” to the
Committee in the drafting the Plan and accompanying documents, allowing the Committee to
dictate the terms of the TDPs and the Plan at large once the Debtor’s liability was capped. Dkt.
No. 3079 at 138. As for evidence to support this claim, the Insurers argue that the Debtor had no
economic stake in the terms of the Trust or TDPs once it had capped its own liability; that the
Committee spent fifteen times as many billable hours than the Debtor drafting the Plan, Trust
Agreement and TDPs; and that specific terms in the Plan, Trust Agreement and TDPs that greatly
favor the Committee are evidence that the Debtor allowed the Committee to draft these documents
without any pushback or concern for other constituents in this case - specifically the Insurers. Id:
at 139-42.
Initially, the Court notes that the Debtor’s exclusive right to file a plan expired on April 1,
2022. See Dkt. No. 1215. Section 1121(c) of the Bankruptcy Code provides that, once exclusivity
ends: “[a]ny party in interest including . . . a creditors’ committee ... may file a plan...” 11
USS.C. § 1121(c). As such, the Court questions whether a plan is proposed in bad faith and
unconfirmable merely because it was drafted primarily or even exclusively by a party other than
the debtor. In other words, the Committee could have drafted and filed this exact plan without any
involvement or agreement with the Debtor because the Debtor’s exclusivity has expired. The
relevant question is whether the contents and impact of the plan meets the standards of section

For example, the Court approved the Fifth Amended Disclosure Statement over the Committee’s
Objection. Dkt. No. 1447.
56

1129, and not which party drafted that plan. However, even assuming the objection is valid, the
record reflects that the Debtor did not “cede the pen” to the Committee in drafting the Plan, the
TDPs or any other accompanying documents. .
The Insurers cite to In re ACandS, Inc., in support of this argument. 311 B.R. 36 (Bankr.
D, Del. 2004). In that case, the court found, based on the record, that the debtor was a wholly
owned subsidiary of a much larger corporation, which had stripped its management of much of its
authority. Id, The court stated that:
[T]he [committee had drafted] the [trust], and... chose the trustee .
. . decided how the security agreement would be crafted and how
many classes of security interests would be formed; and it was the
[committee] that decided who was going to get what. [The debtor]
was there to do their bidding, having been thrown overboard by [its
corporate owner] to keep what was left of that company afloat.
Given the unbridled dominance of the committee in the debtor's
affairs and actions during the prepetition period, its continued
influence flowing from its

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10459784. Public record. Not legal advice.