HTML Document View

Full title: Motion Motion to Amend Findings Entered Under August 4, 2021 Memorandum Opinion and Order Pursuant to Federal Rule of Bankruptcy Procedure 7052 (RE: related document(s)991 Opinion) Filed by C. Davin Boldissar of Locke Lord LLP on behalf of Official Committee of Unsecured Creditors (Attachments: # 1 Proposed Order) (Boldissar, C.) (Entered: 08/17/2021)

Document posted on Aug 16, 2021 in the bankruptcy, 8 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Creditors (the “Committee”) appointed in the above-captioned chapter 11 bankruptcy case (the “Bankruptcy Case”) of The Roman Catholic Church of the Archdiocese of New Orleans (the “Archdiocese” or “Debtor”), hereby moves the Court (the “Motion”) for an order amending certain findings entered under the Court’s August 4, 2021 Memorandum Opinion and Order [Docket #991], in connection with the Committee’s Motion to Dismiss Chapter 11 Case [Docket #203] (the “Motion to Dismiss”).Common to diocesan organizations, a diocese or archdiocese will maintain deposits from parishes, schools, or other affiliated entities and, in turn, will make loans from those deposited funds to parishes or other entities within the diocese or archdiocese.For example, the Court’s final order dated June 19, 2020 on the first day “cash management” order contained a lengthy reservation of rights reserving, among other rights, all rights as to “(a) what property constitutes property of the Debtor’s Estate [and] (b) tracking and/or tracing of funds.”See also Diocese of Wilmington, 432 B.R. at 149 (Under trust law, if the funds are commingled with other Debtor funds, the affiliates have the burden to identify and trace funds); and 158 (“From time to time, the Debtor has transferred funds back and forth between the operating account and the PIA based upon the Debtor’s own liquidity needs.”) 23. 5 Ms. Zuniga testified that “Portfolio B is a hybrid cash management fund that has funds pooled with excess Archdiocese operational cash as well as funds from the loan deposit funds…” 6

List of Tables

Document Contents

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF LOUISIANA In re: ) ) Case No. 20-10846 THE ROMAN CATHOLIC CHURCH OF ) THE ARCHDIOCESE OF NEW ORLEANS ) Section “A” ) Debtor. ) Chapter 11 OFFICIAL COMMITTEE OF UNSECURED CREDITORS’ MOTION TO AMEND FINDINGS ENTERED UNDER AUGUST 4, 2021 MEMORANDUM OPINION AND ORDER PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 7052 [Relates to Docket #991] A HEARING WILL BE CONDUCTED ON THIS MATTER ON SEPTEMBER 14, 2021, AT 1:30 P.M. BY TELEPHONE THROUGH THE DIAL-IN FOR SECTION A 1-888-684-8852; CONFERENCE CODE 9318283. IF YOU OBJECT TO THE RELIEF REQUESTED IN THIS PLEADING, YOU MUST RESPOND IN WRITING. UNLESS DIRECTED OTHERWISE BY THE COURT, YOU MUST FILE YOUR RESPONSE WITH THE CLERK OF THE BANKRUPTCY COURT NO LATER THAN SEVEN (7) DAYS BEFORE THE HEARING DATE. YOU MUST SERVE A COPY OF YOUR RESPONSE ON THE PERSON WHO SENT YOU THE NOTICE; OTHERWISE, THE COURT MAY TREAT THE PLEADING AS UNOPPOSED AND GRANT THE RELIEF REQUESTED. The Official Committee of Unsecured Creditors (the “Committee”) appointed in the above-captioned chapter 11 bankruptcy case (the “Bankruptcy Case”) of The Roman Catholic Church of the Archdiocese of New Orleans (the “Archdiocese” or “Debtor”), hereby moves the Court (the “Motion”) for an order amending certain findings entered under the Court’s August 4, 2021 Memorandum Opinion and Order [Docket #991], in connection with the Committee’s Motion to Dismiss Chapter 11 Case [Docket #203] (the “Motion to Dismiss”). 1

1

INTRODUCTION 1. The Committee requests entry of an order to clarify the August 4, 2021 Memorandum Opinion and Order to address an issue that was not litigated or presented under the Committee’s Motion to Dismiss. 2. Specifically, the order requested would clarify that there is no finding as to ownership of certain funds and accounts (the “Deposit & Loan Fund”) held by the Debtor, and that all rights are reserved as to the issue. JURISDICTION AND VENUE 3. The Court has jurisdiction over this matter under the Bankruptcy Code and pursuant to 28 U.S.C. § 157(a) and § 1334(a). 4. Venue in this district is proper pursuant to 28 U.S.C. § 1409(a). 5. The predicate for the relief requested in this Motion includes Bankruptcy Rules 7052, 9014, and Federal Rule of Civil Procedure 52(b), made applicable under the foregoing Bankruptcy Rules. I. FACTUAL BACKGROUND 6. On August 4, 2021, the Court entered the Memorandum Opinion and Order[Docket #991], in connection with the Committee’s Motion to Dismiss. The August 4, 2021 Memorandum Opinion and Order included the following statement, at page 15: A third limitation on the Archdiocese’s revenue base is the fact that many of the funds held by the Archdiocese belong to non-debtor affiliated entities. Common to diocesan organizations, a diocese or archdiocese will maintain deposits from parishes, schools, or other affiliated entities and, in turn, will make loans from those deposited funds to parishes or other entities within the diocese or archdiocese. Here, the Archdiocese maintains such a fund, which it calls the 2

2

“Deposit & Loan Fund.” See Carr Dep. 39:8–21. In addition to those funds being held on behalf of parishes and schools, Mr. Entwistle testified that some parishes are in default on their repayment obligations of loans made from that fund. See Entwistle Dep. 88:15–21. 7. The purpose of this Motion is to request an order clarifying that that there is no finding as to ownership of the “Deposit & Loan Fund” as referenced above, and that all rights are reserved as to ownership and the scope of property of the estate. II. RELIEF REQUESTED 8. Bankruptcy Rule 7052 (which is applicable to contested matters under Bankruptcy Rule 9014) incorporates Federal Rule of Civil Procedure 52. Rule 52(b) states that on a party’s motion, “the court may amend its findings—or make additional findings—and may amend the judgment accordingly.” As Collier’s states: “The purpose of the motion to amend is to clarify essential findings or conclusions, correct errors of law or fact, or to present newly discovered evidence.” 10 Collier on Bankruptcy ¶7052.03. 9. The Committee does not believe that the Court’s intention was to conclusively determine ownership or title as to any portion of the Deposit & Loan Fund, or any other funds that the Debtor asserts that it holds for other parties. This Motion seeks an order clarifying that all rights are reserved as to ownership of such funds. 10. The Committee submits that the requested order is appropriate for two separate reasons: First, the issue was not litigated by the parties (but will be highly contested). Second, the testimony cited does not support a finding that the referenced funds are not property of the estate. 3

3

A. The Issue of Ownership Was Not Litigated Under the Motion to Dismiss. 11. This issue will be highly contested, but has not yet been litigated by the parties. In the briefs submitted by the parties, this issue of ownership of the Deposit & Loan Fund was not presented to the Court. The Debtor’s post-hearing brief on the motion to dismiss contained only a single reference to the Deposit & Loan Fund, stating: “Moreover, the increase in net assets was largely attributable to one-time non-recurring revenues such as Hurricane Katrina relief, the BP Oil Spill settlement, an increase in deposits held for others, and one-time sales of property.” [Docket #366, ¶45] 12. Indeed, the issue of whether such funds constitute property of the estate was flagged early on under a reservation of rights. For example, the Court’s final order dated June 19, 2020 on the first day “cash management” order contained a lengthy reservation of rights reserving, among other rights, all rights as to “(a) what property constitutes property of the Debtor’s Estate [and] (b) tracking and/or tracing of funds.” [Docket #174, ¶¶19-21] 13. The Diocese of Wilmington case is illustrative and shows how such an issue is properly put before the court and ultimately decided. See Official Cmte. of Unsecured Creditors v. Catholic Diocese of Wilmington, Inc. (In re Catholic Diocese of Wilmington, Inc.), 432 B.R. 135 (Bankr. D.Del. 2010). In this June 28, 2010 ruling, Judge Sontchi considered a similar fund maintained by the Diocese of Wilmington (called the “PIA”). Like the Deposit & Loan Fund here, the Diocese of Wilmington and its affiliates asserted that the PIA fund was property of the affiliates, not the estate. (See id. at 142; the debtor and the affiliates asserted that “all funds within the PIA remain the property of the [affiliate] investor.”) 14. In Diocese of Wilmington, the creditors committee filed an adversary proceeding specifically seeking a ruling that the fund was property of the debtor’s estate. Id. at 146. After a 4

4

four-day trial on this specific issue, Judge Sontchi ruled that the fund was property of the debtor’s estate, with the affiliates having a claim against the debtor, but sharing pro rata with other claims. Id. at 146, 161-62.1 15. Obviously, none of that has occurred here. The issue was not raised and has not yet been litigated by the parties. B. Any Finding as to Ownership of the Deposit & Loan Fund is Not Supported by the Evidence. 16. In addition, the cited deposition testimony does not support a finding as to whether the Deposit & Loan Fund not property of the estate. E.g., Ice Embassy, Inc. v. City of Houston, Case No. 97-0196, *2 (S.D.Tex. March 29, 2007) (Rule 52(b) motion to amend is to be granted where a finding is not supported by evidence in the record); Fontenot v. Mesa Petroleum Co., 791 F.2d 1207, 1219 (5th Cir.1986). 17. The record cited consists of deposition testimony from Father Carr (Joint Exhibit “42”2) and Jeffrey Entwisle (Joint Exhibit “43”). Father Carr stated only his general understanding that “the parishes invest their funds, in the Archdiocese” (Joint Exhibit “42” at p. 39:10-16)3 When asked where such deposits are held, Father Carr testified “I don’t know.” (Id. at pp. 36:8-15 and 39:17-23). 1 There was one exception in the ruling for a discrete portion of the fund as to a single affiliate. See id. at 162. 2 References to “Joint Exhibits” refer to the joint exhibits submitted by the parties and considered by the Court under the Motion to Dismiss, and as listed at Docket #351. 3 The testimony was as follows (p. 39:8-16): “Q.· ·What -- what is your understanding of what a deposit and loan fund is? A.· ·My understanding is that the parishes invest their funds, in the Archdiocese.· Those are the deposits held with the Archdiocese. Q.· ·So the -- the deposit and loan fund is the fund that relates to the line entry that we just discussed, "deposits payable to affiliates?" A.· ·Correct.” 5

5

18. As for Mr. Entwistle, he did not testify at all concerning the Deposit & Loan Fund other than to mention the collectability of loans to the parishes. (Joint Exhibit “43” at p. 88:15-21)4 19. At the very most, the testimony is a bare assertion that the Deposit & Loan Fund is not property of the Debtor. As a matter of law, this is insufficient. As Judge Sontchi held in Diocese of Wilmington, when an account like this “is in the Debtor’s name, however, it is presumptively property of the estate and it is the burden of any purported trust beneficiary to establish otherwise.” Official Cmte. of Unsecured Creditors v. Catholic Diocese of Wilmington, Inc. (In re Catholic Diocese of Wilmington, Inc.), 432 B.R. 135, 161 n. 93 (Bankr. D.Del. 2010) (emphasis added). Judge Sontchi further stated: “The PIA is held solely in the name of the Debtor. As such, the account and its funds are property of the estate under section 541(a) of the Bankruptcy Code.” Id. at 147. 20. Here, just as in Diocese of Wilmington, it is undisputed that the Deposit & Loan Fund account (known as Portfolio B) is in the name of the Debtor. See Joint Exhibit “5,” which is the testimony from the Section 341 meeting of creditors, in which the Debtor’s representative Kathleen Zuniga testified that “the cash on hand in the deposit and loan fund is maintained in Portfolio B” (p. 129: 8-10), and the account is in the name of Archdiocese of New Orleans (p. 130:4-7.). 21. In addition, as was also significant in the Diocese of Wilmington case, the Debtor’s representatives testified here that the Deposit & Loan Fund is “pooled” and 4 “Q.· ·Okay.· The next bullet, "Collectability Of Loans Made From The Deposit and Loan Fund."· Explain the concern there. A.· ·Really very similar to the collectability of assessment income.· If a parish has a loan, and has a responsibility to pay a certain amount to cover principal and interest, if that parish is struggling it's going to also have that same difficulty with that.” 6

6

commingled “with excess Archdiocese operational cash,” (See Joint Exhibit “5,” pp. 120:25 to 121:1-3)5 and funds flow freely between the Deposit & Loan Fund and the Debtor’s operating account “if needed” to support the cash management needs of the Debtor. (See id., p. 138:3-17).622. See also Diocese of Wilmington, 432 B.R. at 149 (Under trust law, if the funds are commingled with other Debtor funds, the affiliates have the burden to identify and trace funds); and 158 (“From time to time, the Debtor has transferred funds back and forth between the operating account and the PIA based upon the Debtor’s own liquidity needs.”) 23. In any case, the relief requested is very limited. The attached proposed order states only that there has been no determination as to the ownership of the Deposit & Loan Fund and any similar funds held by the Debtor, and that all rights are reserved on the issue. RESERVATION OF RIGHTS 24. All appeal and review rights are reserved as to the Court’s August 4, 2021 Memorandum Opinion and Order and pursuant to Bankruptcy Rule 8002. III. CONCLUSION WHEREFORE for these and other reasons to be presented at any hearing on the Motion, the Committee respectfully requests that the Court grant this Motion and enter the attached proposed order; and that the Committee be granted all other proper relief under law or at equity. 5 Ms. Zuniga testified that “Portfolio B is a hybrid cash management fund that has funds pooled with excess Archdiocese operational cash as well as funds from the loan deposit funds…” 6 The testimony is as follows: “JAMES STANG: Got it.· Got it.· Okay.· So the operating account gives the parish the $20,000 and, at some point, Portfolio B sends $20,000 to the operating account.· Is that correct? FATHER PATRICK CARR: If needed. JAMES STANG: And who determines the if needed part? FATHER PATRICK CARR: The cash needs determine that. JAMES STANG: The cash needs of the operating account? FATHER PATRICK CARR: Yes.” 7

7

Dated: August 17, 2021 Respectfully submitted, By: /s/ C. Davin Boldissar Omer F. Kuebel, III (La #21682) C. Davin Boldissar (La. #29094) Locke Lord LLP 601 Poydras Street, Suite 2660 New Orleans, Louisiana 70130-6036 Telephone: (504) 558-5111 Facsimile: (504) 558-5200 Email: dboldissar@lockelord.com and James I. Stang (CA Bar No. 94435) (admitted pro hac vice) Linda F. Cantor (CA Bar No.153762) (admitted pro hac vice) Pachulski Stang Ziehl & Jones LLP 10100 Santa Monica Blvd., Suite 1300 Los Angeles, CA 90067 Telephone: (310) 277-6910 Facsimile: (310) 201-0760 Co-Counsel to the Official Committee of Unsecured Creditors CERTIFICATE OF SERVICE I hereby caused a true and correct copy of the foregoing Motion to be served on August 17, 2021 upon all parties by electronic case filing for those parties receiving notice via the Court’s Electronic Case Filing system, and on all other parties requiring service under the Court’s Ex Parte Order Authorizing the Debtor to Limit Notice and Establishing Notice Procedures through the Master Service List via first-class United States mail, postage prepaid, on August 17, 2021. /s/ C. Davin Boldissar C. Davin Boldissar 8

8