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HEARING DATE: OCTOBER 25, 2011 HEARING TIME: 10:00 A.M. TARTER KRINSKY & DROGIN LLP Attorneys for The Christian Brothers Institute, et al. Debtors and Debtors-in-Possession 1350 Broadway, 11th Floor New York, New York 10018 (212) 216-8000 Scott S. Markowitz, Esq. Eric H. Horn, Esq. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------- x In re: : : THE CHRISTIAN BROTHERS INSTITUTE, et al. : : Debtors. : ------------------------------------------------------------------- x

Chapter 11 Case No.: 11-22820 (RDD) (Jointly Administered)

DEBTORS RESPONSE TO MOTION OF CORPORATION OF THE CATHOLIC ARCHBISHOP OF SEATTLE SEEKING DETERMINATION OF THE EXTENT OF 11 U.S.C. 362 STAY WITH REGARD TO EDMUND RICE CONGREGATION OF CHRISTIAN BROTHERS - NORTH AMERICAN PROVINCE TO: THE HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE The Christian Brothers Institute (CBI)1 and The Christian Brothers of Ireland, Inc. (CBOI),2 the above-captioned debtors and debtors-in-possession (individually a Debtor and collectively, the Debtors) hereby respond (the Response) to the Corporation of the Catholic Archbishop of Seattles (the Archdiocese) motion (the Motion) seeking a determination of the extent of the automatic stay of 11 U.S.C. 362 with regard to claims against Edmund Rice Congregation of Christian Brothers North American Province (NAP). In support of the

The last four digits of CBIs employer identification number are 0153 and its mailing address is 21 Pryer Terrace, New Rochelle, New York 10804. 2 The last four digits of CBOIs employer identification number are 0603 and its mailing address is10001 S. Pulaski, Room 106, Chicago, IL 60655-3356.

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Response, the Debtors respectfully represent as follows: PRELIMINARY STATEMENT 1. While arguably procedurally improper, the Debtors do not object to the Motion to

the extent that it merely seeks to extend the automatic stay to the NAP. The Debtors disagree with the Archdioceses characterization of the NAP and its relationship vis--vis the Debtors and hereby reserve their rights relating to such characterizations.3 2. Additionally, to the extent that the Archdiocese asks this Court to make certain

findings relative to the Archdioceses and the Debtors rights and interests in certain insurance policies, the Motion is certainly not the appropriate vehicle to raise those issues, and, as such, the Debtors respectfully request that the Court deny that aspect of the Motion.4 BACKGROUND 3. On April 28, 2011 (the Petition Date), the Debtors each commenced their

respective Chapter 11 case by filing a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code). Pursuant to 1107(a) and 1108 of the Bankruptcy Code, the Debtors continue to operate as debtors-in-possession. No trustee has been appointed. 4. The Debtors cases were consolidated for administrative purposes only, by order

dated May 2, 2011. Thereafter, by order dated May 18, 2011, the Debtors were authorized to retain Tarter Krinsky & Drogin LLP as bankruptcy counsel. 5.
3

On May 11, 2011, the United States Trustee appointed an Official Committee of

The Archdiocese essentially asserts that the NAP is nothing more than a division of the Debtors by analogizing the relationship between the Debtors and the NAP to the relationship between an Archdiocese and a parish. See Tort Claimants Comm. v. Roman Catholic Archbishop of Portland in Oregon (In re Roman Catholic Archbishop of Portland in Oregon), 335 B.R. 842 (Bankr. D. Or. 2005). 4 In fact, the Archdiocese has commenced an adversary proceeding seeking a declaratory judgment with respect to certain insurance policies listed on the Debtors schedules. Issue has been joined by all parties in the declaratory judgment action and the initial pre-trial conference is scheduled for December 6, 2011.

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Unsecured Creditors (the Committee). The Committee retained Pachulski Stang Ziehl & Jones LLP as its counsel, which was approved by an order of this Court dated July 14, 2011. 6. CBI is a domestic not-for-profit 501(c)(3) corporation organized under

102(a)(5) of the New York Not-for-Profit Corporation Law. CBI was formed in 1906 pursuant to Section 57 of the then existing New York Membership Law. The Not-for-Profit Corporation Law replaced the Membership Law effective September 1, 1970. The purpose for which CBI was, and continues to be, formed was to establish, conduct and support Catholic elementary and secondary schools principally throughout New York State. As a not-for-profit corporation, its assets, and/or income are not distributable to, and do not inure to, the benefit of its directors or officers. CBI depends upon grants and donations to fund a portion of its operating expenses. 7. CBOI is a domestic not-for-profit 501(c)(3) corporation organized under the Not-

for-Profit Corporation Law of the State of Illinois. The purpose for which CBOI was, and continues to be, formed was to establish, conduct and support Catholic elementary and secondary schools principally throughout the State of Illinois, as well as other spiritual and temporal affairs of the former Brother Rice Province of the Congregation of Christian Brothers. As a not-forprofit corporation, its assets, and/or income are not distributable to, and do not inure to the benefit of its members, or officers. CBOI depends upon grants and donations to fund a portion of its operating expenses. 8. The cause for the filing of these cases has been extensively detailed in the affidavit

pursuant to Local Bankruptcy Rule 1007-2 filed with the original petitions, and is referred to as if fully set forth herein. In short, the Debtors Chapter 11 cases were filed in an effort to resolve in one forum, the onslaught of litigation and claims asserted by alleged sexual abuse plaintiffs against the Debtors in several jurisdictions in North America.

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RELEVANT BACKGROUND 9. The NAP is a canonical province within the Congregation of Christian Brothers

and is an unincorporated association of religious lay males, also known as brothers. NAP does not have a separate civil law existence and cannot hold property. The Debtors were formed to hold certain assets that otherwise could not be held by the NAP due to its unincorporated status pursuant to applicable state law. 10. Prior to the Petition Date, the Debtors, NAP and the Archdiocese were named as

defendants in certain actions commenced in the Superior Court for the State of Washington arising out of allegations of sexual abuse, primarily at Briscoe Memorial in Kent, Washington and ODea High School in Seattle, Washington.5 11. On August 15, 2011, the Archdiocese filed the Motion. Although it is not clear

precisely what relief the Archdiocese seeks in the Motion, it does appear that the Archdiocese seeks to, among other things, extend Bankruptcy Code 362s automatic stay to the NAP or obtain a determination that the NAP is part of the Debtors and, therefore, subject to the automatic stay. 12. On August 16, 2011, the Archdiocese commenced an adversary proceeding (the

Declaratory Action) by filing a complaint in this Court (Adv. Pro. No. 11-8332) against the Debtors and certain insurance companies seeking a declaratory judgment identifying the parties specific interests in certain insurance policies. On August 18, 2011, the Archdiocese filed a corrected complaint in the Declaratory Action.

Of the six lawsuits filed in the Washington state courts, the Debtors have removed four, which are now pending as adversary proceedings in this Court. In the two non-removed actions, the Archdiocese is named as a co-defendant along with the Debtors and the NAP.

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RESPONSE 13. Although procedurally improper, the Debtors do not object to the Motion to the

extent that it merely seeks to extend the automatic stay to the NAP.6 The Debtors do, however, disagree with the Archdioceses characterization of the NAP and its relationship vis--vis the Debtors. Because the Debtors are not objecting to the stay extension, they do not believe it is necessary to counter the Archdioceses characterizations at this juncture. That being said, the Debtors herewith reserve their right to do so at the appropriate time and nothing in this Response should be deemed to be a waiver or consent relative to such characterizations.7 14. Additionally, it is unclear whether the Archdiocese asks, by way of the Motion,

that this Court make certain findings relative to its and the Debtors rights and interests in certain insurance policies. See Section C on pp. 5-6 of the Motion. If that is the case, the Debtors do object and note that such matters are to be decided in the context of the Declaratory Action with the parties having the benefit of discovery, if necessary. The Motion is certainly not the

appropriate vehicle to raise those issues and, as such, the Debtors respectfully request that the Court deny that aspect of the Motion.

The plaintiffs in the Washington State Court actions have taken the position that the automatic stay imposed by the Debtors Chapter 11 filings act to stay the entire litigation. The Archdioceses position as to whether the stay prevents the state court actions from proceeding against the Archdiocese, who has asserted indemnification claims against the Debtors, is less than clear. However, it appears from the 9019 motions filed by the Archdiocese that the Archdiocese has settled with the Plaintiffs in the removed actions in which they are named co-defendants. 7 The Debtors do believe that the automatic stay, as a result of the Chapter 11 filings, applies to the NAP. Substantial case law exists for the proposition that the automatic stay applies if a proceeding against a co-defendant would substantially affect the Debtors bankruptcy estate. See McCartney v. Integra Natl Bank N., 106 F.3d 506, 510 (3d Cir. 1997). In the removed state court actions against the Debtors, the NAP and the Archdiocese, plaintiffs are alleging that each defendant is jointly and severally liable. Consequently, a judgment against one could, in effect, be a judgment against the Debtors. The Debtors submit that this is a situation where the property interest of the estate and property interest of a third-party (the NAP) are so interwoven that a creditors action against the thirdparty may adversely affect property of the estate. See In re 48th Street Steakhouse, Inc., 835 F.2d 427 (2d Cir. 1987) cert. denied, 485 U.S. 1035, 108 S. Ct. 1596, 99 L.Ed.2d. 910 (1988).

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WHEREFORE, the Debtors respectfully request that the Court grant the Motion only to the extent of either extending the automatic stay to the NAP or declaring that the automatic stay applies to the NAP, and otherwise deny the relief requested in the Motion, and to grant such other and further relief as is just and proper. Dated: New York, New York October 18, 2011 TARTER KRINSKY & DROGIN LLP Attorneys for The Christian Brothers Institute, et al. Debtors and Debtors-in-Possession By: /s/ Scott S. Markowitz Scott S. Markowitz Eric H. Horn 1350 Broadway, 11th Floor New York, New York 10018 (212) 216-8000

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