the following cases are scheduled for argument this morning tuesday december twelfth two thousand and seventeen seventeen ten seventy nine district of minnesota the official committee of unsecured creditors versus the archdiocese st paul and minneapolis at all sixteen forty three fifty six district of minnesota paul hill various accounts receivable services and from the district of nebraska sixteen three zero one good morning may it please the court there are two legal issues before the court this morning the first issue is whether the facts played by the committee are sufficient to plausibly demonstrate the giller standard for some sort of consolidation the court throw me off ok well then i can easily move to that first that's not that's not the supreme court indeed it's not even the circuit court your sites are all district in bankruptcy court i'm just i got the landscape right i think so with the way the way i swore i'd open the way i view it is in one nine hundred forty one the decision all of the facts are not precisely on target but also consistent with decisions from the circuit and a number of other circuits could in the ninth circuit and cases that involve nondairy consolidations i relied on yan consolidate the estates of related bankrupt entities that is what was done in good order and many other cases but the remedy of sorts of consolidation has been recognized in numerous pardon me you are involved that's correct religious entities being substituted consolidated that is a case of first impression for this court but the remedy of consolidation shouldn't be limited to debtors or non debtors because the fun on the remedy question in my career that the ultimate remedy you see is that the all the assets of the local parishes within the archdiocese are available for the for distribution to the archdiocese creditors regardless of whether that particular ny i've ever what's your strongest case for the application of that women well to do and not on a non debtor that didn't didn't participate and whatever wrongs of the better produce particular creditors play well i would i would say that the current court to the bottom decision in the ninth circuit was and certainly the sample supreme court decision as well as owns corning creditor service all what we're seeking to do we're the committee we have an obligation to investigate the assets and liabilities of the debtor and one of the fundamental things that you do in bankruptcy is identify the estate at the outset of a bankruptcy case this estate has never been properly identified and that is why we need to go through this exercise of substance consolidation i would also say that we are at this point seeking an evidentiary hearing on it we were dismissed and i motioned to dismiss stage so yes ultimately we would get to that remedy if we can make the case and meet the giller standards in front of a trial court that hears the evidence but short of that these that opportunity will be cut off some two or three of the entities but but what what justification would there be to bring a parish in that say this may not exist and for one hundred years has always observe corporate formalities all the money has come from the contributions of the parishioners over one hundred years how can i how can you bring an entity like they had in so look particularly since they've been incorporated in accordance with the laws of the state of  minnesota have a couple of responses to that first of all our perspective is we're not bringing anyone in they're already they're already part of this bankruptcy estate that means us to the minnesota statute means nothing no i would say i'm sorry and go ahead you know i would say that the statute absolutely clarifies and highlights the really in a relationship the domination and control that is exerted by the archdiocese over these parishes it mandates that they case basis because all of these are sui generis none of these cases are going to be the same so financial intermingling is a factor but if that doesn't exist that doesn't mean you're not eligible for substance consolidation you have to look at the entire point i wanted to get to certainly the evidence will vary with respect to each entity that we see to subsume we consolidate in some cases it'll be stronger use and some cases will be weaker but with respect to all of them we've played  what do you have the size and role of my hypothetical here so there is there is financial in a man doing there are creditors overlapping creditor claims between the various levels of evidence with respect to those entities and i'm asking you what you know we're going to look in the record sites for are we well certainly there are there is there's all kinds of intermingling with respect to insurance issues there's a there's a general insurance fund that all the parties participate in that's that's required by the archdiocese there is we're asking me what other evidence i have of intermingling and i would point to the  the what what what evidence you have was a geisha and brought it with gay chanson control that the innocent parishioners of my hypothetical parish should lose all the assets that they've supported contributed to developing for forty years let's zero in order to satisfy you or your room clients of legitimate claims against the arch against a different well i would i would respectfully say that the proper focus is not on the parishioners of each of the parishes but as on the the claims of the innocent victims to help remedy you know another class of innocent victims i or toward perpetrated by others i respectfully disagree that that's what i'm advocating for what i'm advocating for  basically is your argument based on the problem of sexual abuse and since they make within the system and therefore you should be able to do so developed to what extent it existed throughout absolutely absolutely or on and  have come forward with significant evidence i mean this is not the type of motion to dismiss for thursday to claim that is based on skin evidence we had a voluntary affidavit have fifty fifty paragraphs of material facts that we planted and yes much with does go to control but some of it does go to financial entanglements and we talk about insurance we talk about the inner parish won't fund when we talk about the archdiocese making parishes with more money provide money to parishes with less money this is a is singular unit that's what we have a stablish and it's plausible based on the on the on the a court can affirm what i can see then yeah absolutely not what with less i'm sorry much i might have misunderstood you if if if the remedy you seek as described that is the liquidation of the assets of all of the other and of these you wish to bring in to the estate is involuntary bankruptcy as that term is used in section three and three then there's your court right so you have to win that issue is i as i understand i do i agree i have to when that issue and let me say in respect of that issue really dangerous territory for this court to get to my section on  explicitly mandated by section to be zero three and there's a majority of courts out there that have ruled on this very issue including the ninth circuit just in july and the confused that role of social consolidation as an independent creditor remedy  you mentioned you wanted to get discovery but this is one part of a bigger case have you not taken extensive depositions and obtained extensive discovery about the financial affairs of the archdiocese and the parishes in the main bankruptcy case it is it is one of the biggest frustrations of the committee that we have been denied that opportunity repeatedly we've been denied the opportunity  financial advisor that would help us develop the evidence we could reduce and we've been denied the opportunity to bring in more fulsome case before the trial court and  parish committee to back up there is a substantial question as to whether consolidations ever available with regard to an on debt or an addict as pointed out by this court killer dealt with debtor organizations certainly that issue has not been addressed by the supreme court or by this court however we don't get to that question much less the giller standards or factors this court determines that the committee of ask your creditors the u c c may do indirectly what it cannot do directly it is commenced an involuntary bankruptcy proceeding against a charitable organization the language of section three o three a is clear the council of foundations in its amicus brief did a good job in providing the history in explaining the purpose of the statute which goes c has been unable to find a single case a single case involving the consolidation of a non profit entity the basic argument from the u c c is that consolidation is somehow different and distinct from an involuntary bankruptcy proceeding i mean it's one of the issues here how you ask the question if if the question is can a separate entity that's that's a charitable entity brought in through consolidation i think the answer is pretty clearly no under three zero three but if the question there was if if the separate entity if worse labeled a separate entity is in fact part of the main entity that they're also commingled and so interrelated that they can't be separated then is that the so is a answer the say the answer is it is the same because a consolidation order affectively involuntary bankruptcy petition there's there is no difference and the u c c is not a den of fide the alleged distinctions and differences between a voluntary petition and a consol n order what if the financial fair is just so entertaining goat that you can't you can't really tell where which dollar belongs to which entity well that case the committee  made the u c c might have been able to make a case under killer they have not made that case or that the sea and i were talking about a different question right now you're saying that well if it is so and intra tangled that that then maybe ge did acknowledge that you could do a fraudulent conveyance you know and so if so if if the archdiocese or some other non profit entity set up a subsidiary corporation transfer a bunch of assets th you do acknowledge that that would be a fraudulent conveyance type of a cause of action could be brought under five forty nine right at absolutely and that is a remedy separate and distinct from consolidation and that was a pursuing those claims that order i do not believe was appealed so but yes the avoidance remedies are available i think in your hypothetical were astros have been transferred back and forth without consideration so forth  h those transfers are certainly fair game in a bankruptcy proceeding and that's a remedy far different than a substantial consolidation assumption of consolidation claim which attempts to bring into a involuntary bankruptcy proceeding against those entities that is worse than an involuntary bankruptcy proceeding is a would make those entities those target entities essentially guarantors of the archdiocese to de and with and probably without the protections of a bankruptcy court pursue adding other words the target and his would have all of the burdens of a bankruptcy proceeding it's not clear to me that they'd have any of the benefits this was a point the judge crustal pushed on at the argument and i don't do not believe that he received it satisfactory answer just loken presented the hypo of the parish they had never had a priest who had committed parishioners but there are a number of parishes i do not have have not been implicated in the abuse crisis five because as the courts below found section one hundred five does not carry with it the ability of a bankruptcy court to take action that the that the bankruptcy code prohibits i think that's  what is going on here and for that reason i don't think it's necessary to get to the broader question of whether you can under the correct circumstances consolidate a non debtor with a debtor  entity and again the reason for that to two fold one the non debtor entity has certain rights under section three all three including the right to for example sure that it's paying us debts in the ordinary course of merger of the target entity with the debtor entity and it raises a serious due process concerns for the target that is and the creditors and employees vendors and so forth of that target entity all of which are being ignored bankruptcy motion with limited notice within the limited fairly short time periods permitted under the bankruptcy rules for regular motions they did not seek discovery in  over some extended period of time without knowledge to or of without notice to any other parties in this case judge across all properly applied rule ninety fourteen of the at this case was appropriate for rule twelve motions to dismiss the u c c could have proceeded in very much different way they could have for example sought an early date in the case to conduct a our rule two thousand and four examination and discovery with respect to their claims of of relationships between the parishes and the least state a cause of action i think they're wrong on that point and so i don't believe that sending this back for additional discovery would accomplish anything other than maybe giving the u c c an opportunity to bolster arguments that are legally insufficient to start to begin with as determined by george cross over in judgment gunnery again the threshold problem is section three or three a if you don't if we don't get over that hurdle there's nothing left to the case and i don't think you get over that for that over that hurdle again i don't think it's necessary to reach the giller factors for all of those reasons i that consolidation of non debtor corporations with a debtor is is proof is not permitted killer could and perhaps should be limited to debtor corporations but i think it's worth saying a word about the first of the giller factors which is the factor emphasized by the u c c this factor deals with the necessity for consolidation due to the interrelationship among the parties this case instead the u c c has focused on operational financial and managerial aspects of the relationship similar to the claims that were made in the morkie case the p you operate under a statutory scheme very similar to the want to minnesota the u c c has relied on those operational financial and managerial aspects and on an argument based on company's to pay among other things personal expenses no case the u c c is not cited a single case that involves facts anywhere close to what we have in this case let me ask you a procedural question  as i understand the current state of the of the of the main bankruptcy case the parties have filed competing plans there's been a confirmation hearing is that correct well your honor the judge cross will determine that the parties would argue the legal merits of the respective plans and so that was done at the end of august of the two plans are now before judge cross will to determine basically legal case because it would conclude the entire bankruptcy proceeding but presumably then they would probably have to appeal their plan and this would be one of the issues in the appeal t  in this case it would the committee plan reports you take all of the archdiocese assets put it in a pot and leave the parishes exposed to claims change the committee of creditors for the for the parish committees were provided for by the by the bankruptcy court to look after the interests of the of the parishes here but i'm here today based based on representation of them along with the several other healing mohsen ery entities that have been dragged into this proceeding namely some schools and some other charitable organizations because we all have the same interest with respect to this proceeding the it's important to understand and know and acknowledge that none of these are bankruptcy daters in either this case or any other related case in fact pierce what the what they claim to be a corporate veils behind which the archdiocese is hiding assets there have been no allegations of facts to show the abuse of any corporate forms failure to separately maintain books or records or any of the other incidents that would justify piercing the corporate veil that's essentially what they're looking for there's substantial harm here should  be granted it may trigger an any number of do on sale clauses or other in security default provisions of mortgages agreements making payroll for parish staff and teachers and keeping the lights on difficult because they would become imagine bankruptcy proceeding in which many of their creditors have no connection with this debtor or its debtor creditor relationship thousands perhaps of additional creditors this needs to end this should have ended at the bankruptcy level it should have ended at the district court level this needs to end now this is a link the very costly proceeding that goes nowhere thank you very well thank you for your  and like to follow up with just a few points in rebuttal i can say no better than the debtor itself when it stated that the parishes must be part of any plan of reorganization even though they're not debtors put simply th archdiocese cannot receive a fresh start and the catholic church cannot function and maintain its core mission without viable parishes unburdened by litigation that is what the debtors plan provides complete protection to all the pa ishes and most of the consolidation parties without contribution there is a significant policy reason why the lower court should not be affirmed here that is  court would be describing the pathway for the future dishonest debtor to avoid the claims of legitimate creditors nowhere in three zero three a does it say anything what three doesn't say anything about pierce in the corporate feel or alter ego claims that i made either of those claims here i assure you that my opponents would be up your saying three o three a prohibits that that is why the courts the lower courts were unable to say there is an explicit mandate that's being violated they said in both instances effectively involuntary bankruptcy this is in effect an involuntary this is not in effect of voluntary bankruptcy this court has it right and my opponents have it right an involuntary bankruptcy is about unpaid creditor claims that's a completely different focus themselves of consolidation what the archdiocese and its parishes desperately want is for the parishes to have the benefit of the bankruptcy process without the burdens and the burdens is subjecting their assets to the claims creditors yet they want all the benefits they're asking for channeling injunctions and third party releases make no mistake and then again if we're way than the facts and the evidence that i might be able to bring to a evidentiary hearing might determine that only the parishes where folks were abused would be or would cases are brought on motions and once the motions filed in a polarized it becomes a contested matter and that triggers the rules with respect to discovery we were not given that judge cristol stay the discovery immediately and said i'm going to import inappropriate given the context of this case these creditors are not commercial creditors these are involuntary creditors these folks would love nothing better than to not be creditors and they make no distinction between the parishes and the archdiocese that's all i have thank you very well we thank both sides of the argument that's obviously been very early briefed and argued and the case is now submitted and we will take it under consideration thank you