Adopting the minority view, a bankruptcy judge in New Mexico decided that the automatic stay bars a creditor from suing the debtor in bankruptcy court if the claim is one that the creditor could have brought before bankruptcy and does not arise under the Bankruptcy Code.
The May 13 opinion by Bankruptcy Judge David T. Thuma of Albuquerque, N.M., could be one of those cases where facts buried in the record may have affected the outcome.
The Allegations of Improper Conduct
The Archdiocese of Santa Fe, N.M., filed a chapter 11 petition in December 2018 to deal with sexual abuse claims. Before bankruptcy in September 2017, the archdiocese published a list of priests and other “religious” persons who were credibly accused of sexual abuse. One of the men on the list, whom we shall call the accused, was shown as having been a member of the Benedictine Order.
The archdiocese published the list again after bankruptcy.
Before bankruptcy, the accused told the archdiocese that he was wrongly included in the list and that he had never been “religious” as that term is used within the church, had never been a seminarian working within the archdiocese who was “found guilty” of abuse, and was not a member of the Benedictine Order. Explaining the inaccuracy of the accusations in detail, the accused wrote to the archbishop, but the church did not remove him from the list, the accused said in court papers.
In court papers in bankruptcy court, the accused said that the archdiocese “summarily ordered him to cease and desist having any contact with the [cathedral in Santa Fe where he was a volunteer coordinator for wedding preparation] . . . and summarily ordered him to cease and desist any other contact with any other parish volunteer organization.”
Also before the chapter 11 filing, the accused commenced a defamation action in state court, seeking compensatory and punitive damages. The complaint did not seek equitable relief, such as a mandatory injunction to delete the accused from the list. After bankruptcy, the accused filed a $200,000 proof of claim.
In bankruptcy court, the accused filed a motion asking Judge Thuma to enjoin the archdiocese by directing the removal of his name from the list. With refinements described below, Judge Thuma denied the motion without reaching the merits.
The accused made many denials in his prebankruptcy letter to the archdiocese and in his motion to be deleted from the list, but the papers could be understood to mean that he did not deny having inappropriate relations with a minor.
The Stay Applies to Some Suits in Bankruptcy Court
First, Judge Thuma asked whether the motion was filed in violation of the automatic stay.
Judge Thuma said there “is conflicting case law on whether it violates the automatic stay for a creditor to sue the debtor in bankruptcy court on a prepetition claim.” The majority, he said, believe that “creditors may bring such proceedings in bankruptcy court without violating the stay.”
Judge Thuma said that the majority justify the result by saying that a lawsuit in bankruptcy court is equivalent to filing a proof of claim.
The minority, according to Judge Thuma, believe the stay applies based on the “plain language” of Section 362(a)(1), which stops the commencement or continuation of an action on a claim that arose before bankruptcy.
Judge Thuma had three reasons for agreeing with the minority. First, he said, “the language of Section 362(a)(1) is clear” in the sense that it bars actions like the one by the accused that could have been brought before bankruptcy.
Second, Judge Thuma said that the minority view does not create “absurd results,” because actions such as filing a claim, a dischargeability complaint or a stay relief motion could not have been brought before bankruptcy.
Third, Judge Thuma said that “suing the debtor in bankruptcy court is not equivalent to filing a proof of claim. Claims objections are contested matters, not adversary proceedings.”
If the accused wants the archdiocese to remove his name from the list, Judge Thuma required the accused to take two steps. First, the accused must move for a modification of the automatic stay. If the motion is granted, the accused then must commence an adversary proceeding seeking a mandatory injunction. Or, the accused could remove the suit pending in state court that is enjoined by the automatic stay. In that suit, the accused would be obliged to amend the complaint to seek equitable relief.
Once there is an adversary proceeding in bankruptcy court seeking an injunction, Judge Thuma said that “claim allowance would not be part of it.” Judge Thuma said he would not take the claim for monetary relief “out of order” and adjudicate the amount of damages until the debtor lodges an objection to the claim.
Observations
There is more to the story than Judge Thuma could detail in his opinion.
Some of the court papers filed by the accused and the archdiocese are enlightening. Notably, the accused’s motion seems not to allege that he never had sexual relations with anyone who was underage.
The accused, for instance, recounted how he wrote a letter to the archbishop in 2017 that could be interpreted as admitting that, when he was 19 years old, a priest introduced him to someone who was 17 and that he had a summertime relationship with that 17-year-old person. Following the relationship, the accused went to a monastery, where he remained for six years.
In a bankruptcy court filing, the accused recites how he was sued in 1993 with regard to the relationship. The court filing could be interpreted to mean that he settled the suit for $5,000, on the advice of counsel.
Allegations by the archdiocese in answering the defamation complaint in state court provide more detail. The archdiocese said that the accused “was credibly accused of committing child sexual abuse in 1970, including non-consensual forcible oral sodomy and attempted anal sodomy of a minor, in a lawsuit filed in 1994 against the Archdiocese of Santa Fe, [the accused], and the Benedictine Monks.”
The archdiocese’s pleading in the defamation suit went on to say that the accused, in “correspondence with the Archdiocese, . . . admitted to engaging in sexual conduct with the minor in 1970.” The archdiocese’s answer in the defamation suit alleges that the accused “was a seminarian in the Archdiocese of Santa Fe who has been credibly and publicly accused of child sexual abuse that he committed under the auspices of the Archdiocese of Santa Fe, while residing at the Benedictine Monastery in Pecos, New Mexico.”
The allegations by and against the accused help explain why Judge Thuma is requiring the accused to abide punctiliously by the Bankruptcy Code and Rules. The gravity of the allegations and the possible dispute about the facts don’t counsel procedural shortcuts.
Adopting the minority view, a bankruptcy judge in New Mexico decided that the automatic stay bars a creditor from suing the debtor in bankruptcy court if the claim is one that the creditor could have brought before bankruptcy and does not arise under the Bankruptcy Code.
The May 13 opinion by Bankruptcy Judge David T. Thuma of Albuquerque, N.M., could be one of those cases where facts buried in the record may have affected the outcome.
The Allegations of Improper Conduct
The Archdiocese of Santa Fe, N.M., filed a chapter 11 petition in December 2018 to deal with sexual abuse claims. Before bankruptcy in September 2017, the archdiocese published a list of priests and other “religious” persons who were credibly accused of sexual abuse. One of the men on the list, whom we shall call the accused, was shown as having been a member of the Benedictine Order.
The archdiocese published the list again after bankruptcy.
Before bankruptcy, the accused told the archdiocese that he was wrongly included in the list and that he had never been “religious” as that term is used within the church, had never been a seminarian working within the archdiocese who was “found guilty” of abuse, and was not a member of the Benedictine Order. Explaining the inaccuracy of the accusations in detail, the accused wrote to the archbishop, but the church did not remove him from the list, the accused said in court papers.
In court papers in bankruptcy court, the accused said that the archdiocese “summarily ordered him to cease and desist having any contact with the [cathedral in Santa Fe where he was a volunteer coordinator for wedding preparation] . . . and summarily ordered him to cease and desist any other contact with any other parish volunteer organization.”
Also before the chapter 11 filing, the accused commenced a defamation action in state court, seeking compensatory and punitive damages. The complaint did not seek equitable relief, such as a mandatory injunction to delete the accused from the list. After bankruptcy, the accused filed a $200,000 proof of claim.