Westport Insurance Corporation v. The Official Committee of Unsecured Creditors of the Roman Catholic Archbishop of San Francisco

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 WESTPORT INSURANCE Case No. 25-cv-09314-WHO CORPORATION, [8] Plaintiffs, ORDER WITHDRAWING 9 REFERENCE v. 10 Re: Dkt. Nos. 6, 26 THE OFFICIAL COMMITTEE OF 11 UNSECURED CREDITORS OF THE ROMAN CATHOLIC ARCHBISHOP OF 12 SAN FRANCISCO, Defendant. [14] 15 Westport Insurance Corporation (“Westport”) brought a declaratory relief action in the 16 United States Bankruptcy Court for the Northern District of California (the “Bankruptcy Court”) 17 against debtor the Roman Catholic Archbishop of San Francisco (“RCASF”), seeking to clarify 18 whether Westport has any obligation under its insurance policy to defend or indemnify the 19 RCASF in its ongoing sexual abuse court actions. Westport now seeks to withdraw the insurance 20 coverage dispute from the Bankruptcy Court to this court under 28 U.S.C. § 157 (d). For the 21 reasons described below, Westport’s motion to withdraw reference is GRANTED. 22 BACKGROUND 23 Westport entered a prepetition liability contract with the RCASF to provide “excess 24 liability coverage” for a period running from July 8, 1972 to July 8, 1975 (Excess Policy No. 25 U10447) (the “Policy”). See Notice of Motion (“Mot.”) [Dkt. No. 6] at 3. The policy provided 26 coverage for “loss in excess of the limits of underlying insurance and resulting from an 27 ‘occurrence.’” Id. An “occurrence” was defined by the policy as including “an accident, 1 injury or property damage neither expected nor intended from the standpoint of the Insured.” Id. 2 The RCASF has faced increased scrutiny in recent years by survivors of child sexual 3 abuse. Id. When the California Legislature removed the statute of limitations to bring forth claims 4 alleging childhood sexual abuse, approximately 537 lawsuits were filed against the RCASF 5 alleging sexual abuse by clergy or others associated with it. Id. at 3–4 (referencing Cal. Civ. Proc. 6 Code § 340.1(q)). Given the sudden increased volume of litigation, the RCASF filed for Chapter 7 11 Bankruptcy in the Bankruptcy Court on August 21, 2023. Mot. at 4–5. 8 Westport alleges that the RCASF has tendered to them “over 100 Underlying Claims for 9 which the [RCASF] seeks coverage under the Policy.” Mot. at 5. As a result, on October 8, 2025, 10 Westport filed a complaint in the Bankruptcy Court, seeking declaratory judgment that the Policy 11 does not provide coverage to the RCASF in various circumstances, as well as a jury trial on all 12 disputed issues. Id. at 5–6. Westport “contemporaneous[ly]” filed a motion to withdraw the 13 reference to the Bankruptcy Court in order to have the matter heard in this one. See id. On 14 November 17, 2025, the RCASF filed a statement of non-opposition to Westport’s motion. See 15 Statement of Non-Opposition (“Non-Oppo.”) [Dkt. No. 26] at 1. 16 DISCUSSION 17 Under 28 U.S.C. § 1334 (b), district courts retain “original but not exclusive jurisdiction” 18 over all bankruptcy proceedings. These proceedings include “core proceedings, in which the 19 bankruptcy court may enter appropriate orders and judgments,” and “non-core proceedings, which 20 the bankruptcy court may hear but for which it may only submit proposed findings of fact and 21 conclusions of law to the district court for de novo review.” Sec. Farms v. Int’l Brotherhood of 22 Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999 , 1008 (9th Cir. 1997) (quoting 28 23 U.S.C. § 157 ) (internal quotation marks omitted). “Actions that do not depend on bankruptcy laws 24 for their existence and that could proceed in another court are considered ‘non-core.’” Id. 25 District courts have the authority to withdraw reference to the bankruptcy court under 28 26 U.S.C. § 157 (d). That section allows for both permissive and mandatory withdrawal. Id. 27 Mandatory withdrawal is required if “resolution of the proceeding requires consideration of both 1 interstate commerce.” Id. Permissive withdrawal, however, requires a showing that the party 2 moved in a “timely” manner and shows “cause” in support of its request. Id. “In determining 3 whether cause exists, a district court should consider the efficient use of judicial resources, delay 4 and costs to the parties, uniformity of bankruptcy administration, the prevention of forum 5 shopping, and other related factors.” Sec. Farms, 124 F.3d at 1008. 6 Westport contends that permissive withdrawal is appropriate in this case because (1) much 7 of the dispute involves jury issues that cannot be resolved by a bankruptcy court; (2) the claims at 8 issue involve “exclusively state-law matters . . . that by definition do not arise under the 9 Bankruptcy Code or in the Bankruptcy Case”; and (3) withdrawal will “promote the efficiency, 10 economy, and other policy considerations that animate the referral power.” Mot. at 1–2. Westport 11 also claims that the reference “must be withdrawn eventually” and doing so “now will prevent 12 ongoing harm to the administration” of the underlying bankruptcy proceeding. Id. at 2. The 13 RCASF does not oppose withdrawal of the reference because the insurance coverage dispute 14 involves “non-bankruptcy law” and potentially triable issues before a jury but does not “concede 15 or admit . . . the underlying claims or allegations” asserted in the insurance coverage dispute. 16 Non-Oppo. at 1. I agree that there is good cause to withdraw the reference here. 17 A. The Motion is Timely. 18 A withdrawal request is timely if brought “as promptly as possible in light of the 19 developments in the bankruptcy proceeding.” Sec. Farms, 124 F.3d at 1007 n.3 (quoting In re 20 Baldwin-United Corp., 57 B.R. 751, 754 (S.D. Ohio 1985)). Courts have found that motion for 21 withdrawal is timely if filed within days of the underlying complaint in bankruptcy court. See, 22 e.g., Roman Cath. Diocese of Rockville Ctr. v. Certain Underwriters at Lloyds, London & Certain 23 London Mkt. Cos., 634 B.R. 226 , 233 (S.D.N.Y. 2021) (eight days after answer); Sec. Farms, 124 24 F.3d at 1107 n.3 (six days after removal from state court). 25 Westport’s motion is timely under Section 157(d). Westport moved for withdrawal of the 26 reference “mere minutes after filing the Complaint that initiated the proceeding.” Mot. at 7. This 27 certainly qualifies as a “timely” motion to withdraw reference. B. There is Cause to Withdraw. [1] 1. Judicial Efficiency [2] The next step in the analysis is deciding whether Westport’s claims are core or non-core, as [3] “it is upon this issue that questions of efficiency and uniformity will turn.” Hjelmeset v. Cheng [4] Hung, No. 17-CV-05697-BLF, 2018 WL 558917 , at *3 (N.D. Cal. Jan. 25, 2018). Bankruptcy [5] judges are “limit[ed] [by the Constitution] to adjudicate—i.e., to render a final judgment—to [6] issues that are at the ‘core’ of the bankruptcy power.” In re Harris, 590 F.3d 730, 737 (9th Cir. [7] 2009). If a proceeding is “core,” then “[b]ankruptcy judges may hear and determine” it on a final [8] basis, subject to appellate review. 28 U.S.C. § 157 (b)(1). If a proceeding is “non-core,” however, [9] then a bankruptcy court must prepare “proposed findings of fact and conclusions of law” for [10] submission to “the district court,” who must then enter “final . . . judgment” on the claim “after [11] considering the bankruptcy judge’s proposed findings and conclusions and . . . reviewing de novo” [12] all “matters to which any party has [properly] objected.” 28 U.S.C. § 157 (c)(1). [13] To determine “whether a matter is a non-core proceeding,” courts typically “look to a [14] variety of factors ‘such as whether the rights involved exist independent of title 11, depend on [15] state law for their resolution, existed prior to the filing of a bankruptcy petition, or were [16] significantly affected by the filing of the bankruptcy case.’” In re Yochum, 89 F.3d 661, 670 (9th [17] Cir. 1996) (quoting In re Cinematronics, Inc., 916 F.2d 1444 , 1450 n.5 (9th Cir. 1990)). “[I]n [18] cases where non-core issues predominate, judicial efficiency may be ‘enhanced,’” as [19] “‘unnecessary costs could be avoided by a single proceeding in the district court.’” In re Cachet [20] Fin. Servs., 652 B.R. 341 , 346 (C.D. Cal. 2023) (quoting Sec. Farms, 124 F.3d at 1008–09). [21] Westport maintains that the claims in the insurance coverage dispute “clearly are non-core [22] under this analysis.” Mot. at 9. I agree. Its complaint raises only non-core state law claims. The [23] crux of the insurance coverage dispute involves “disagreements over the terms of prepetition [24] contracts” that “depend on state law for their resolution” and “exist independent of title 11.” Mot. [25] at 10; In re Yochum, 89 F.3d at 670 (internal citations and quotations omitted); see also In re The [26] Roman Catholic Bishop of Oakland, Nos. 3:24-cv-00709-JSC, 3:24-cv-00711-JSC, 2024 WL 27 1160907, at *2 (N.D. Cal. Mar. 18, 2024) (finding similar contractual disputes to be “non-core” to 1 the bankruptcy court); Cinematronics, 916 F.2d at 1450 (“[S]tate law contract claims . . . [should] 2 not be deemed core”). Because contract disputes involve quintessentially “private rights,” 3 bankruptcy courts lack authority under Article III to issue a final judgment on these contractual 4 claims. Exec. Bens. Ins. Agency v. Arkison, 573 U.S. 25 , 32 (2014). Under these circumstances, 5 the bankruptcy court lacks both the statutory and constitutional authority to resolve the insurance 6 coverage dispute “on a final basis.” Mot. at 11. Withdrawal is inevitable, and judicial efficiency 7 is “best served by having the matter heard in the correct forum at the earliest possible 8 opportunity.” Everett v. Art Brand Studios, LLC, 556 B.R. 437, 445 (N.D. Cal. 2016). 9 Additionally, Westport has demanded a jury trial on all claims in the insurance coverage 10 dispute. Mot. at 12. Because Westport does not consent to bankruptcy jurisdiction, the 11 Bankruptcy Court cannot conduct a jury trial on the noncore claims. See Mot. at 15; 12 Cinematronics, 916 F.2d at 1451 . Each of these reasons suggest that withdrawal is the most 13 judicially efficient outcome. 14 2. Other Factors 15 The other factors—“delay and costs to the parties, uniformity of bankruptcy 16 administration, the prevention of forum shopping, and other related factors”—likewise favor 17 withdrawal of the reference here. Sec Farms, 124 F.3d at 1008. Withdrawal will help mitigate 18 any concerns about delay and costs to the parties, as it will “plac[e] the non-core cases in this 19 Court, which can render final judgment.” In re Rosales, No. 13-CV-01316-LHK, 2013 WL 20 5962007, at *7 (N.D. Cal. Nov. 7, 2013). Similarly, forum shopping and the uniformity of 21 bankruptcy administration are not concerns here because “only this Court has the power to enter 22 final judgment on the claims [that] the Bankruptcy Court cannot” adjudicate. Id. 23 CONCLUSION 24 Each permissive withdrawal factor weighs in favor of removing the insurance coverage 25 dispute from the Bankruptcy Court and neither party opposes withdrawal. Westport’s motion is 26 GRANTED. 27 An initial case management conference for the parties is set for February 3, 2026 at 2:00 1 January 27, 2026. 2 IT IS SO ORDERED. 3 Dated: December 10, 2025 \ [5] 6 Witliam H. Orrick United States District Judge [10] ll ae 12 [14] © [16] = 17