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HEARING DATE: JANUARY 23, 2012 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 REPLY TO OFFICIAL COMMITTEE OF UNSECURED CREDITORS RESPONSE TO DEBTORS MOTION FOR AN ORDER ESTABLISHING DEADLINES FOR FILING PROOFS OF CLAIM AND APPROVING FORM AND MANNER OF NOTICE THEREOF TO: THE HONORABLE ROBERT D. DRAIN UNITED STATES BANKRUPTCY JUDGE The Christian Brothers Institute (CBI) and The Christian Brothers of Ireland, Inc. (CBOI), the above-captioned debtors and debtors-in-possession (individually a Debtor and collectively, the Debtors) hereby file this reply (the Reply) to the response (the Response) of the Official Committee of Unsecured Creditors to the Debtors motion for an order establishing deadlines for filing proofs of claim and approving form and manner of notice thereof (the Bar Date Motion). In support of the Reply, the Debtors respectfully represent as follows: PRELIMINARY STATEMENT 1. In the Response, the Committee alleges that the Debtors are somehow dilatory in

their diligence vis--vis the bar date. That simply is not true. While the Debtors have a limited
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administrative staff and their cases are not commercial cases run by sophisticated individuals, the Debtors are cognizant and take quite seriously their responsibility to provide the best possible notice of applicable bar dates in these cases. 2. Indeed by the Bar Date Motion, the Debtors sought to create a protocol that they

believe will net the highest number of potential sexual abuse claimants. The noticing protocol the Debtors are proposing to implement focuses on Brothers who were accused and the institutions where such Brothers served. In determining which Brothers were accused, the Debtors carefully searched their records, including but not limited to, personnel files, litigation documents, and records of formal and/or informal complaints that were lodged against Brothers over the years. Additionally, during the last ten years or so, the Debtors have engaged outside consultants to assist the Debtors in investigating complaints made against Brothers. 3. From the Debtors diligence, combined with information obtained from outside

consultants, the Debtors put together a list of seventy-seven (77) Brothers accused of wrongdoing. The Debtors also searched their records to determine which institutions those accused Brothers served at. 4. The Debtors submit that while they are a small religious order, they have made

significant strides in gathering the necessary information to complete the task at hand. For instance, the Debtors have made written requests and issued numerous subpoenas to certain institutions. The fruit of that work thus far has resulted in approximately 40,000 alumni being inputted into the bar date database for noticing purposes. 5. The Debtors believe that they are making significant progress in these cases,

particularly with reference to the bar date, which aside from implementing a procedure to liquidate claims, is one of the major goals of these Chapter 11 cases. Any suggestion by the

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Committee to the contrary is simply nonsense and likely emanates from the plaintiffs lawyers representing individual members of the Committee. 6. Importantly, the Committee supports entry of a bar date order (which was heavily

vetted with the Committee), and as such, the Debtors respectfully request that the Bar Date Motion be approved, as may be modified by the Court to reflect the various limited objections and any concerns and/or comments which the Court may have. GENERAL BACKGROUND 7. 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. 8. 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. 9. On May 11, 2011, the United States Trustee appointed an Official Committee of

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. 10. 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

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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. 11. 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. 12. 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. Most, if not all, of the sexual abuse claims date back to the 1950s, 1960s, and 1970s.1 REPLY A. Brothers are a Small Teaching Order 13. The Debtors Chapter 11 cases are somewhat unique in that the Debtors, over a

period of many decades, either operated or were significantly involved in teaching and ministry with numerous schools, orphanages, and other institutions across the United States and Canada;
1

Although approximately 60 claims (including Canadian claims), were pending and/or asserted against the Debtors as of the Petition Date, the Committees professionals has advised the Debtors that they expect at least 1,000 claims will be filed once the bar date is noticed.

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many of which have been closed for a number of years. 14. CBI and CBOI are relatively small organizations. Many of the Brothers are

elderly or infirm. The focus of their work is on teaching and helping impoverished communities or communities in need, primarily through education. For example, several Brothers teach at All Hallows High School in the Bronx, which is the poorest congressional district in the United States. The Brothers have a substantial presence in Bonita Springs, Florida assisting in the education of migrant farm workers. Brothers have also assisted Operation Helping Hands in rebuilding houses for displaced residents in New Orleans as a result of Hurricane Katrina. Many of the Brothers have full-time teaching positions at educational institutions, such as at Iona Preparatory School. The Debtors have a limited administrative staff and their Chapter 11 cases are not commercial cases run by sophisticated individuals. The Debtors are for all practical purposes run by lay people. 15. The Debtors are cognizant and take quite seriously their responsibility to provide

the best possible notice of applicable bar dates in these cases. That is what the Debtors have done and continue to do.2 B. Bar Date Noticing Protocol and Diligence in Connection Therewith 16. On November 29, 2011, the Debtors filed the Bar Date Motion (Docket No.170).

The purpose of the Bar Date Motion was two-fold. First, as is customary in Chapter 11 cases, the Bar Date Motion seeks to establish dates in which creditors (including victims of sexual abuse) have to file their proofs of claim. Second and more complicated the purpose was to flesh out to the Court the protocol that the Debtors seek to utilize in order to provide the best
2

As this Court is aware, there have been other Chapter 11 filings by religious orders in order to resolve sexual abuse litigation claims in one forum to enable the religious order to obtain a discharge and move forward, unhampered by past wrongdoings. While the Debtors Chapter 11 cases may be smaller in terms of assets, these cases are in many ways more complex because of the fact that the Debtors Brothers were dispersed in many states throughout the United States. The other religious orders that have filed Chapter 11 were limited in geographic scope.

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possible notice to creditors, both known and unknown. 17. By the Bar Date Motion, the Debtors created a protocol which they believe will

net the highest number of potential claimants. To use a colloquial, the Debtors thought it more prudent to fish with a large net as opposed to a single line. As described in the Bar Date Motion, the noticing protocol the Debtors are proposing to implement focuses on Brothers who were accused and the institutions where such Brother served. In determining which Brothers were accused, the Debtors carefully searched their records, including but not limited to, personnel files, litigation documents, and records of formal and/or informal complaints that were lodged against Brothers over the years. Additionally, during the last ten years or so, the Debtors have utilized outside consultants to assist the Debtors in investigating complaints made against Brothers. 18. From the Debtors diligence, combined with information obtained from outside

consultants, the Debtors put together a list of seventy-seven (77) Brothers accused of wrongdoing.3 The Debtors also searched their records to determine which institutions those accused Brothers served at (the Institutions). C. Efforts to Obtain Alumni Directories 19. Despite the Committees allegations to the contrary, the Debtors are certainly

using their best and reasonable efforts to obtain the alumni directories from the Institutions. Indeed, in November 2011, the Debtors made written requests to the Institutions requesting their respective directories. That process netted the following school directories: (i) (ii)
3

All Hallows; Guadalupe Regional Middle School; and

It is important to note that inclusion on the list does not necessarily mean the accusation against a particular Brother has merit. The Debtors attempted to be over-inclusive rather than under-inclusive. In addition, to the extent that alleged victims were discovered during the diligence, those names are being added to the list of parties to receive actual notice of the sexual abuse bar date.

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(iii) 20.

Rice High School (NYC).

Shortly after making the written request, the Debtors moved to the next level

they filed a motion to issue subpoenas on the Institutions (Docket No. 167; 11/22/11) which was granted by Court order dated November 29, 2011 (Docket No. 168) (the Directory Order). 21. Since entry of the Directory Order, the Debtors served approximately twenty-five

(25) subpoenas on various Institutions demanding copies of their respective directories. Out of the twenty-five, the following Institutions provided their directories without further involvement of the Court: (i) (ii) (iii) (iv) (v) (vi) (vii) 22. Archbishop Curley / Notre Dame High School; Bishop Hendricken; Blessed Sacrament / St. Gabriels High School; Cantwell High School; Christian Brothers Boys Central (n/k/a Butte Central); Damien Memorial High School; and Leo High School.

ODea High School owned / operated by the Corporation of the Catholic

Archbishop of Seattle (the Archdiocese) provided their alumni directories after the Debtors entered into a so-ordered confidentiality agreement with the Archdiocese.4 This directory is of critical importance to the Debtors noticing efforts as much of the pre-petition litigation commenced against the Debtors stems from allegations arising out of this Institution. Additionally, because the State of Washington abrogated the statute of limitations for sexual abuse, that only heightens the importance of the Debtors receipt of that directory.

On December 13, 2011, the Archdiocese, as owner of ODea High School filed a motion to, among other things, quash the subpoena requesting alumni directories (Docket No. 178). That motion was resolved via the Debtors entry into a stipulation / confidentiality agreement with the Archdiocese, which was so ordered by this Court on January 12, 2012 (Docket No. 208).

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23.

The following Institutions have communicated their willingness to provide their

directories some of which may be tailored to cover only years where students may have had contact with an accused Brother: (i) (ii) 24. Cardinal Hayes High School; and Tampa Catholic (1984 to present to be produced).

In response to the issued subpoenas, on January 9, 2012, the following Institutions

filed a motion (the Subpoena Motion) seeking to limit or otherwise quash their respective subpoenas: 5 (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Bergen Catholic High School; Bishop Kearney High School; Brother Rice High School (IL); Brother Rice High School (MI); Catholic Memorial School; Iona Preparatory School; Palma School; and St. Laurence High School.6

Contemporaneous with the filing of this Response, the Debtors are filing an objection to the Subpoena Motion. 25. As a result of the Debtors efforts, the Debtors claims agent has inputted

approximately 40,000 alumni names and addresses and anticipates inputting tens of thousands more over the next few weeks. 26. For the Committee to allege as it does in its Response that the Debtors have

been dilatory in their diligence to identify victims is preposterous and borderlines on bad faith. D. Committee Noticing Approach is Beyond What is Required by Case Law and Not Likely to Uncover Significant Additional Potential Sexual Abuse Victims 27.
5

In its Response, the Committee is essentially asking this Court to order the

Prior to filing the Motion, counsel to those schools contacted Debtors counsel (first by letter dated December 27, 2011, and subsequent conversations and letters) to attempt to resolve production issues. 6 One institution (Notre Dame / Bishop Gibbons High School) indicated that they may consider taking a similar route.

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Debtors to search every basement and attic with a flashlight with the hopes of finding a name that was not otherwise captured by the Debtors broad-based noticing protocol and years of diligence.7 The Debtors submit that such efforts would be overly burdensome and unlikely to yield significant results. In addition, as set forth below, the case law does not support such exhaustive efforts to search out potential claimants. 28. When reviewing the Committees papers, the Court should keep in mind that for

almost two decades prior to the Petition Date, lawyers for individual Committee members have been scouring various records in an effort to locate victims and solicit business. For example, the Debtors believe that Pfau Cochran Vertetis Amala PLLC recently created a website called Iona College Abuse, which links to other sites including contact information for Michael Pfau in order to solicit business.8 See Webpages annexed hereto as Exhibit A. 29. To the Debtors it appears that this search with a candle approach is more akin

to a plaintiffs lawyers approach as opposed to a bankruptcy approach. In any event, the Debtors believe that their approach is more reasoned and a better use of the Debtors limited resources. E. Debtors Should not be Required to Search Beyond their Own Books and Records 30. In its Response, the Committee urges this Court to require the Debtors to search

beyond its books and records for potential victims. For instance, the Committee is requesting that the Debtors be required to get and review documents from the Congregation of Christian Brothers in Rome to locate potential sexual abuse victims. See Response at Point B. This too
7

This is evidenced by the redacted 1950s correspondence attached to the Committees motion to seal filed contemporaneously with the Response. 8 Aside from potentially violating attorney solicitation rules, the websites are extremely misleading as they are intended to appear as they are official websites of a particular school. For example, Iona College in New Rochelle received calls from students who came upon the website, mistakenly thinking that Iona College had posted the website.

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sounds like plaintiffs lawyers essentially looking for a deep pocket and seeking to compel a non-debtor to comply with a highly controversial and arguably unenforceable state court order. 31. Courts in this district have expressly found that a debtor does not have to search

beyond its own books and records to identify claims. See, e.g., Grant v. U.S. Home Corp (In re U.S.H. Corp. of NY), 223 B.R. 654, 659 (Bankr. S.D.N.Y. 1998) (noting that [c]ase law demonstrates that what is required is not a vast, open-ended investigation. The requisite search instead focuses on the debtors own books and records) (internal citation omitted); In re Best Products Co., Inc., 140 B.R. 353, 358 (Bankr. S.D.N.Y. 1992) (finding that a debtor is not required to search elsewhere [beyond own books and records] for those who might have been injured); In re Thomsom McKinnon Securities Inc., 130 B.R. 717, 720 (Bankr. S.D.N.Y. 1991) (noting that [o]n the one hand, a debtor must make reasonable diligent efforts to uncover the identities of those who have claims against the debtor, although the debtor is not required to search out each conceivable or possible creditor) (internal citation omitted). F. Debtors Noticing Protocol Comports with Applicable Jurisprudence 32. By the Bar Date Motion, the Debtors are working to implement a protocol which

provides known creditors with actual notice and unknown creditors with publication notice. Whether notice is reasonable or adequate depends on whether a creditor is known or unknown to the debtor. See In re U.S.H. Corp of NY, 223 B.R. at 658; see also Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995). Known creditors must receive actual, mail notice of bankruptcy proceedings. See id. at 345. By contrast, notice by media publication is sufficient to satisfy the requirements of due process for unknown creditors. See id. at 346-47. 33. A known creditor is one whose identity is either known or reasonably

ascertainable by the debtor. Id. at 346 (citing Tulsa Professional Collection Serv., Inc. v. Pope,

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485 U.S. 478 (1988)). In identifying known creditors, due process requires debtors to perform reasonable diligence of their books and records but it does not require that debtors engage in impracticable and extended searches. Mullane, 339 U.S. at 317; see also In re Thomson McKinnon Securities Inc., 130 B.R. at 720 (noting that the debtor is not required to search out each conceivable or possible creditor); Chemetron Corp., 72 F.3d at 346. 34. By contrast, the Supreme Court has held that an unknown creditor is one whose

interests are either conjectural or future or, although they could be discovered upon investigation, do not in due course of business come to the knowledge of the debtor. Mullane, 339 U.S. at 317. Moreover, in bankruptcy cases, when determining whether a creditor is

known or unknown, the appropriate form of notice, and how much to spend on notice, courts must balance the interests of the debtors existing and potential creditors as well as other parties in interest. See Vancouver Womens Health Collective Soc. v. A.H. Robins Co., Inc., 820 F.2d 1359, 1364 (4th Cir. 1987); see also Fogel v. Zell, 221 F.3d 955, 963 (7th Cir. 2000); In re GAC Corp., 681 F.2d 1295, 1300 (11th Cir. 1982); In re Circuit City Stores, Inc., 439 B.R. 652, 660 (Bankr. E.D. Va. 2010) ([t]he totality of the circumstances in each case must be analyzed to determine whether a particular creditor is known or unknown). 35. The Debtors submit that their proposed noticing protocol is reasonably calculated

and designed to afford both known and unknown creditors sufficient notice, and, as such, should be approved.9

The Committee raises other limited objections, such as the definition of sexual abuse, and the use of proper Canadian terminology and the implementation of a rolling bar date. While the Debtors believe their definition of sexual abuse is adequate, the Debtors defer to the Court and are prepared to modify such definition as may be appropriate. The Debtors are prepared to make changes to reflect Canadian terminology, although the Debtors vigorously dispute whether the claims in Canada are valid against the Debtors, as they should have been dealt with in the winding down of Christian Brothers of Ireland in Canada (CBIC). The Debtors are amenable to a provision in the bar date order to address a rolling bar date concept.

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WHEREFORE, the Debtors respectfully request that this Court grant the Bar Date Motion and grant such other and further relief as is just and appropriate. Dated: New York, New York January 19, 2012 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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