Diocese Not Liable in Bankruptcy for Sex Abuse Without Agency Relationship with Abuser or Abuser's Institution

In In re Roman Catholic Diocese of Rockville Centre, New York, (SD NY, July 15, 2024), a New York federal district court affirmed a bankruptcy court's dismissal of appellants' claims that they were sexually abused as children by clergy and staff at religious institutions in the diocese's territory. The court said in part:

... [T]o adequately assert state law tort claims, Claimants must plead that the Debtor had some control over the abusers or the religious institutions where the abuse occurred....  In other words, Claimants were required to plead the existence of an employment or agency relationship between the Diocese and the alleged abusers, or an agency relationship between the Diocese and the religious institutions.   

The bankruptcy court properly determined that Claimants offered no non-conclusory allegations to support either theory of liability....

The bankruptcy court correctly observed that “the Free Exercise Clause and Establishment Clause of the United States Constitution bar courts from interpreting issues of religious Canon Law to resolve disputes.”...  Instead, “the claimants must show that an employment or agency relationship existed between the Debtor and abuser or Religious Institutions/Orders, based on facts relevant to those theories as they are normally established in the secular context.”... [T]he resolution of the issue presented in this case ... does not, however, depend upon any interpretation of Canon Law that would violate the First Amendment.  Here, Claimants fail to state a claim because the allegation that the Diocese revoked the faculties of one abuser accused in connection with a claim that is not at issue in this appeal is insufficient to plausibly allege that the specific abusers at issue here were employees or agents of the Diocese, or that their institutions were agencies of the Diocese.... [A]n allegation that the Diocese hired, fired, supervised, or disciplined an individual not at issue in this appeal does not support an inference that the Diocese has the power to control all clergy or staff at Catholic institutions within its geographic territory or exercised that power over any specific abuser in this appeal....

Former Editor of Yiddish Children's Magazine Sues Rabbinical Courts and Others Under RICO and Sherman Act

Suit was filed last month in a New York federal bankruptcy court against several rabbinical courts, rabbis, and other defendants charging Sherman Act and RICO violations. Plaintiff was the co-owner of a Yiddish language children's magazine who claims his former partner conspired with others to destroy his business. (Full text of 93-page complaint in In re Paneth v. Reiner, (ED NY Bkrptcy, filed 1/17/2024)). Shtetl has published a lengthy summary of the complaint, saying in part:

... Paneth claims that investor David Reiner used money and influence to sway leading Haredi rabbinical courts to coerce Paneth into a rabbinic arbitration process over disputes relating to the operation and management of Kindlein magazine.

... Ultimately, the complaint says, the rabbinical courts and Reiner collectively violated the Sherman Antitrust Act by colluding to put Paneth out of business and thereby eliminate Reiner’s only competition. They also sought to deprive Paneth of any employment opportunities and to ostracize him from the Hasidic world, the complaint says.

Baltimore Catholic Archdiocese Files For Bankruptcy Reorganization

The Archdiocese of Baltimore Announced last Friday that it is filing for Chapter 11 bankruptcy protection in advance of the Oct. 1 effective date of a Maryland Child Victims Act of 2023 which removes the statute of limitations for civil actions by victims of sexual abuse that occurred while the victim was a minor. In the Announcement, Archbishop Lori said in part:

... I have made the decision I believe will best allow the Archdiocese both to equitably compensate victim-survivors of child sexual abuse and ensure the local Church can continue its mission and ministries.

In an interview with Catholic Review, the Archbishop said in part:

... [S]ince the new law does not provide a defined period of time or “lookback window” for victim-survivors to file suits, as many other states have done, the archdiocese could have faced many years of liability for anything that happened over the course of the last 80 years. The Chapter 11 reorganization process creates a one-time window for victims of past cases of abuse to file a claim and participate in the settlement process. Once that process is complete, no future lawsuits or claims will be allowed in historic cases of abuse.

San Francisco Archdiocese Files for Bankruptcy Reorganization

In a press release yesterday, the Catholic Archdiocese of San Francisco announced that it has filed for Chapter 11 Bankruptcy Reorganization. According to the press release:

The filing is necessary to manage and resolve the more than 500 lawsuits alleging child sexual abuse brought against RCASF under California Assembly Bill 218, which allowed decades-old claims to be filed by December 31, 2022, that otherwise were time barred....

The 88 parishes within the Archdiocese are independently managed and self-financed and, along with their parochial schools, are not included in the filing. The Real Property Support Corporation, Capital Asset Support Corporation, high schools, Catholic cemeteries, St Patrick’s Seminary & University, and Catholic Charities associated with RCASF also are not included in the filing and will continue to operate as usual.

KEYT News reports on the filing and reactions to it.

Sex Abuse Claims Arising Before Diocese Was Formed Are Disallowed in Bankruptcy Case

In In re Roman Catholic Diocese of Rockville Centre, New York, (SD NY Bkrptcy., May 26, 2023), a New York federal bankruptcy court disallowed nine sex-abuse claims filed in the bankruptcy reorganization of the Rockville Centre Catholic Diocese because they occurred before the Rockville Centre Diocese was formed and in territory which, at the time of the alleged abuse, belonged to the Diocese of Brooklyn. The court allowed claims by four other individuals to be filed in amended form because while they occurred before the Rockville Centre Diocese was incorporated in New York, they occurred after the Vatican formed the Diocese. The court said in part:

First, the Court finds that the First Amendment, and its intersection with canon law, is not a bar to the Court's ruling on this Objection. Second, the Court finds that the Objection must be sustained for Pre-Establishment Claims because the Diocese i) did not assume the prior liabilities and ii) the de facto merger exception does not apply. Finally, the Court finds that fairness requires allowing the Post-Establishment Claimants an opportunity to amend their claims.

Oakland Catholic Diocese Files for Chapter 11 Reorganization.

The Catholic Diocese of Oakland, California announced yesterday that it is filing for Chapter 11 bankruptcy reorganization, saying in part:

The filing is necessary in light of the more than 330 lawsuits alleging child sexual abuse brought against RCBO under a recent California statute that allowed decades-old claims otherwise time barred and expired to be filed....

Most of the claims brought under the most recent California statute stem from allegations of sexual abuse that occurred in the 1960s, 70s, and 80s by priests who are no longer active in ministry and/or deceased. Chapter 11 is a court-supervised, transparent process that allows for the evaluation of the merits of each claim and gives claimants a say in the outcome and visibility into the proceedings and RCBO’s finances. With the Chapter 11 filing, legal actions against RCBO will stop, allowing RCBO to develop a plan of reorganization, based on assets and insurance coverage available to be used to settle claims with abuse survivors.

Catholic schools that operate in the diocese are separate entities and are not included in the bankruptcy filing.

Bankruptcy Court Rejects Sex Abuse Claims Arising Outside Boundaries of Diocese

In In re Roman Catholic Diocese of Rockville Centre, New York,(SD NY Bkrptcy., April 19, 2023), a New York federal bankruptcy court held that two groups of claims filed in the Chapter 11 Bankruptcy Reorganization of the Rockville Centre Diocese should be expunged. The claims grow out of alleged sexual abuse by Franciscan brothers that occurred outside of the Diocese.  Claimants argued that the Rockville Centre Diocese had control over the Franciscan Brothers religious organization and so had control over the alleged abusers.  The court said in part:

It is well-established under New York law that for the Diocese to be liable for torts of alleged abusers, the Diocese must have had a duty to control them....

The Brooklyn Claimants’ position is that the Objection fails to settle the question of “control” as a matter of law considering the internal rules of the Catholic Church, and therefore there is a disputed fact that warrants discovery. The parties agree that the Franciscan Brothers operated the five schools and parishes at issue in the Brooklyn Claims, and the Brooklyn Claimants focus solely on whether the Debtor had control over the Franciscan Brothers. They contend that the Diocese had control over the Subject Entities through its control over the Franciscan Brothers....

The additional allegations in the Brooklyn Response frame Catholic Canon Law as a set of rules that govern employer-employee or principal-agent liability outside of secular legal  principles governing these relationships. Not so. As discussed above, there is a clear constitutional prohibition on this Court weighing in on the parties’ dispute over Catholic Canon Law.... New York courts have rejected the argument that Catholic Canon Law imposes diocesan liability where secular law would not.

Judge Refuses to Recuse Himself from New Orleans Archdiocese Bankruptcy Matters

AP and WWL-TV reported on Saturday that federal district court judge for the Eastern District of Louisiana, Greg Guidry, has refused to recuse himself from reviewing matters related to the bankruptcy reorganization proceedings of the Catholic Archdiocese of New Orleans. An investigation by the Associated Press found:

... [S]ince being nominated to the federal bench in 2019 by then-President Donald Trump, [Guidry] has given nearly $50,000 to local Catholic charities from leftover contributions he received after serving 10 years as a Louisiana Supreme Court justice.

Most of that giving, $36,000 of it, came in the months after the archdiocese sought Chapter 11 bankruptcy protection in May 2020 amid a crush of sexual abuse lawsuits. That included a $12,000 donation to the archdiocese's Catholic Community Foundation in September 2020 on the same day of a series of filings in the bankruptcy, and a $14,000 donation to the same charity in July of the following year.

At a pre-trial status conference last Friday, Guidry read from an advisory opinion he had received from the federal Judicial Conference's Committee on Codes of Conduct. It concluded that no reasonable person would question Guidry's impartiality. The Advisory Opinion said in part:

none of the charities to which you contributed some of your wind-down campaign funds has been or is an actual party in any proceeding before you....

AP had also reported that Guidry had once served as a board member on the Archdiocese's charitable arm for eight years.  The Advisory Opinion said, however:

[Y]our leadership as a board member of one of the charities ended 15 years ago, which is a significant span of time.

Guidry, who as district court judge would hear appeals from rulings of the district's bankruptcy judge, told the lawyers at the status conference:

Based upon that advice and based upon my certainty that I can be fair and impartial, I have decided not to recuse myself.

Albany, NY Catholic Diocese Files for Bankruptcy Reoganization

The Roman Catholic Diocese of Albany, New York announced that on Wednesday it filed a petition for bankruptcy reorganization in federal bankruptcy court.  The Bishop's letter to the faithful said in part:

We maintain global mediation would have provided the most equitable distribution of the Diocese’s limited financial resources but as more Child Victims Act (CVA) cases reached large settlements, those limited funds have been depleted. The Chapter 11 filing is the best way, at this point, to ensure that all Victim/Survivors with pending CVA litigation will receive some compensation. The decision to file was not arrived at easily, but we, as a Church, can get through this and grow stronger together.

To date, the Diocese has been named in more than 400 CVA lawsuits which were filed between Aug. 15, 2019, and Aug. 14, 2021. With the assistance of the Court and demonstrating its ongoing good faith commitment to Victim/Survivor claims, the Diocese has separately settled more than 50 CVA cases....

This filing also puts on hold the lawsuits involving the St Clare’s pensioners. That was not our purpose for filing. While many questions remain regarding the St. Clare’s pension fund, the plight of the pensioners is of great concern to me. The St. Clare’s pensioners are certainly close to my heart and, as I would do with anyone in a difficult situation, I offer my pastoral care.

CNA reports on the bankruptcy filing.

Catholic Diocese of Santa Rosa, California Files for Bankruptcy

Last week, the Catholic Diocese of Santa Rosa, California (the state's smallest Catholic diocese) announced that it is filing for Chapter 11 bankruptcy reorganization. According to the Diocese, the decision was made because of the large number of child sex abuse lawsuits filed against it during a 3-year window created by the California legislature for suits to be filed even though the statute of limitations had previously run. Some of the lawsuits relate to conduct that occurred as long as 60 years ago. The Diocese said in part:

These cases are too numerous to settle individually and so they have accumulated until the closing of the three-year window. Now that the window is closed, we have received notice of at least 160 claims and we have information that perhaps more than 200 claims have been filed in total against the Diocese.

 ... [I]n 2003 the Diocese faced similar circumstances but with many fewer cases. At that time excess property was sold, money borrowed and the Diocese paid approximately $12 million dollars with an additional $19 million coming from insurance. Since then, the Diocese has expended an additional $4 million on individual settlements. Now, facing at least 160 new cases, with excess property depleted, with insurance for many of the years either non-existent or exhausted it is impossible to see any way forward without recourse to the bankruptcy protections our Country makes available....

[W]e are deeply saddened that so many have endured abuse in the past and that the scourge of child sexual abuse is a part of our diocesan history. The present action of the Diocese is necessary and through this process we hope to provide for those who have come forward and who are yet to come forward at least some compensation for the harms they have endured.

Links to all the legal filings in the case are available at this website. Catholic News Agency reports on the bankruptcy filing.

Bankruptcy Reorganization Plan for Harrisburg Diocese Approved By Court

On Feb. 15, the U.S. Bankruptcy Court for the Middle District of Pennsylvania gave final approval to the Plan of Reorganization for the Catholic Diocese of Harrisburg. (Full text of Reorganization Plan.) (Announcement by Diocese.) A Questions and Answers document explaining the Plan says in part:

The Plan outlines how the RCDH and related entities will (a) establish a Survivor Compensation Trust, (b) provide funding to the Trust in an amount equal to $7,500,000 to provide financial restitution for survivors of clergy sexual abuse, and (c) adopt enhanced child protection protocols. In addition to the financial restitution from the RCDH and related entities, current and historical insurance providers will also contribute $10,750,000 to the Trust....

Prior to filing for reorganization, the RCDH authorized an independent Survivor Compensation Program be established, in order to provide financial restitution to abuse survivors. Through this program, $12,784,450 was provided to assist 111 survivors.... 

More than 60 proofs of claim were submitted during the reorganization process and may be eligible for financial distributions from the Survivor Compensation Trust....

The majority of the claims involve accusations against Diocesan priests. As part of the confirmation process, the Diocese issued a list of persons involved in the claims. That list is available www.hbgdiocese.org/reorganization-information. All claims of abuse received during the bankruptcy process were reported to law enforcement.

Links to all the major legal documents filed in the reorganization are available on the Diocese's website. WHP CBS21 reports on the Plan's approval. The Survivor's Network SNAP issued a press release reacting to the Plan approval.

Court Approves Bankruptcy Reorganization Plan for Santa Fe Archdiocese

The Catholic Archdiocese of Santa Fe, New Mexico announced yesterday that a U.S. Bankruptcy Court has confirmed a Plan of Reorganization that has been agreed to by the Committee representing victims of clergy abuse and by the Archdiocese. According to an Open Letter from the Official Committee of Unsecured Creditors recommending that abuse victims vote to accept the plan:

Under the Plan, the Debtor, its affiliates and their insurers will create a settlement fund of approximately $121.5 million (the “Settlement Amount”) upon the effective date of the Plan. The Plan also includes measures to enhance child protection, including the first-ever publication of abuse related documents through an archive administered by the University of New Mexico.

All the Chapter 11 Plan Documents are available on the Archdiocese's website. In announcing the court's confirmation of the plan, Archbishop Wester said in part:

While I hope and pray that the bankruptcy outcome will bring a measure of justice and relief to the victims of clergy sexual abuse, I realize that nothing can ever compensate them for the criminal and horrendous abuse they endured. I pledge that the Archdiocese of Santa Fe will remain vigilant in protecting children and young people from clergy sexual abuse, doing all we can to assure them of a safe and protective environment in the Catholic Church. We will continue to monitor the safeguards we have put in place and implement the non-monetary agreements....

Once again, I express my most profound sorrow and contrition for those who have endured clergy sexual abuse. This is a sin that cries to heaven for vengeance and which has no place in the Catholic Church: not now, not ever.

AP reports on the court's action and has additional background on the proceedings. 

New Jersey Diocese Settles Abuse Claims Of 300 Survivors For $87.5M

 The Catholic Diocese of Camden, New Jersey announced yesterday:

The Diocese ... and the Official Committee of Tort Claimant Creditors ... which represents the interests of approximately 300 survivors of sexual abuse, have reached a settlement which will provide for the establishment of a substantial trust to compensate survivors of sexual abuse within the Diocese. The trust will be funded with $87.5 million from the Diocese and related Catholic entities over a four-year period. The settlement also includes maintaining or enhancing the protocols for the protection of children, which were first implemented by the Diocese in 2002. The settlement remains subject to Bankruptcy Court approval.

AP reports on the settlement.

District Court Affirms Bankruptcy Court's Ruling On Property Dispute Between Two Rabbis

In Zaks v. Mosdos Chofetz Chaim Inc., (SD NY, Dec. 7, 2021), a New York federal district court affirmed a bankruptcy court's decision in a dispute between two rabbis, who are brothers, over the transfer of real property in Spring Valley, New York under the Plan of Reorganization of Mosdos Chofetz Chaim. Among other things, the court rejected appellant's argument that by applying the "common corporate structure" test, the Bankruptcy Court violated the First Amendment right of Mosdos to have its ecclesiastical leadership control all facets of its governance in compliance with its religious obligations.

New Orleans Archdiocese Settles False Claims Act Lawsuit

The Department of Justice announced this week that in a settlement of a False Claims Act lawsuit that was originally brought by a whistleblower, the Catholic Archdiocese of New Orleans has agreed to pay the federal government more than $1 million in damages. (Full text of Settlement Agreement).  The whistleblower will receive nearly $200,000. The lawsuit alleges that the Archdiocese knowingly submitted false claims to FEMA for repair or replacement of facilities damaged by Hurricane Katrina. This included damage to a nonexistent central air conditioning unit and misstatement of the sized of a facility. The settlement was approved last month by the U.S. Bankruptcy Court handling the Archdiocese's bankruptcy reorganization. National Catholic Register reports on the settlement.

Automatic Stay of Suits In Bankruptcy Prevents State Court Defamation Suit Against Diocese

In In re Roman Catholic Church of the Diocese of Santa Fe, (NM Bkruptcy., Sept. 17, 2021), a New Mexico federal bankruptcy court refused to lift the Bankruptcy Code's automatic stay of suits which the Diocese of Santa Fe enjoys while going through bankruptcy reorganization proceedings. Rudy Blea, a former lay minister in the Catholic Church, sought to bring a state court defamation action against the Diocese for wrongfully placing him on a list of "Priests, Deacons, and Religious Accused of Sexual Abuse of Children." He claims that his lay position places him outside the description of those included in the list. He also contends that a relationship he had when he was 19 with 17 year old Gary House was consensual. Subsequently Blea settled a suit against him brought by House. Now the bankruptcy court said in part:

[T]he Court finds that Blea has not carried his burden of showing that cause exists to modify the automatic stay. Blea has an uphill battle to win his defamation claim and get money damages. His chance of obtaining his desired equitable relief from this Court is vanishingly small, for the reasons outlined above. It makes no sense to allow Blea to tilt at this windmill, nor to force Debtor (and other creditors) to incur the expense of defending the charge.

The court did however hold that the Bankruptcy Court:

has jurisdiction to hear Blea’s defamation claim and award money damages if appropriate, applying neutral principles of law. It also has jurisdiction to enjoin further publication of defamatory statements, if defamation is proved. It does not have jurisdiction, however, to order that Blea be removed from the List, nor to adjudicate Blea’s challenge to Debtor’s decision that he was close enough to the church in 1970 to warrant inclusion on the List.

Minnesota Diocese Settles Clergy Sex-Abuse Claims In Bankruptcy Reorganization

According to WXOW News, the Catholic Diocese of Winona-Rochester, Minnesota which filed for bankruptcy reorganization in 2018 has agreed with its creditors' committee to settle clergy sex-abuse claims from 145 claimants for $21.5 million. The diocese also issued an apology to victims. The settlement must still be approved by the court in the final plan of reorganization.

Abuse Victims Win First Round In Santa Fe Archdiocese Reorganization Proceedings

 In In re Roman Catholic Church of the Archdiocese of Santa Fe, (NM Bankr., Oct. 9, 2020), a New Mexico federal bankruptcy court granted an unsecured creditors committee-- apparently representing primarily clergy sex abuse victims-- derivative standing to pursue claims that some $150 million in assets actually belong to the Archdiocese, not to individual parishes. The Archdiocese serves as creditor in possession during its Chapter 11 reorganization, and it has refused to pursue the assets. Responding to the Archdiocese's First Amendment defenses, the court said in part:

The Bankruptcy Code’s fraudulent transfer sections are neutral and of general applicability, so it may be difficult to challenge them as violating the Free Exercise Clause of the First Amendment....

It rejected a RFRA defense, holding that RFRA applies only when the government is a party to the litigation. Rejecting a religious autonomy defense, the court said in part:

A claim to recover an alleged fraudulent transfer does not appear to be the kind of intrachurch dispute that the religious autonomy doctrine typically protects from court interference.

The court concluded its opinion with a plea for settlement negotiations:

If one or more of Debtor’s and/or the parishes defenses has merit, the UCC’s claims will fail. If none has merit, the UCC will recover many millions of dollars for the estate. Either way, the proposed litigation will be very expensive and time-consuming. Unless settled, the proceedings may have to be completed by successors to the party representatives, the judge, and counsel, after years of motion practice, discovery, discovery disputes, trials, appeals, remands, and retrials. Millions of dollars would have been spent on attorney fees and costs that could have paid valid abuse claims.

More clarity about the rights of the parties and what is estate property could help the ongoing efforts to reach a global settlement in this case. For that reason, some litigation of the UCC’s proposed claims may be needed. There will be a point, however, that the cost of continued litigation likely will outweigh the benefit. If the proceedings are not settled before then, Debtor, the parishes, and the abuse victims will be the poorer for it.

Two Catholic Dioceses File For Chapter 11 Bankruptcy Reorganzation

In the face of sex abuse lawsuits filed after states enacted legislation reviving previously time-barred claims, on Oct. 1 two more Catholic dioceses filed for bankruptcy reorganization under Chapter 11. 

The Diocese of Rockville Centre, New York (covering Long Island) issued a press release and a letter from Bishop John Barres. The letter said in part:

[I]n the year since the passage of the Child Victims Act, more than 200 lawsuits alleging sexual abuse have been filed against the Diocese of Rockville Centre. What became clear is that the Diocese could not continue to carry out its spiritual, charitable and educational missions while also having to shoulder the increasingly heavy burden of litigation expenses associated with these cases.

Filing for Chapter 11, we believe, is the only way for the Diocese to ensure a fair and equitable outcome for everyone involved.... 

During this period of restructuring, most Diocesan operations and ministries will continue without interruption.... 

Since the parishes and schools of the Diocese of Rockville Centre are separate legal entities, they are not included in this Chapter 11 filing. But it is also the case that after Chapter 11, the Diocese will have fewer financial resources to help struggling schools and parishes.

CNN reports on the filing, noting that this is the largest U.S. diocese to file for bankruptcy.

The Diocese of Camden, New Jersey issued a letter from Bishop Dennis Sullivan as well as an FAQ document and a summary of developments. The Bishop's letter reads in part:

The effects of the pandemic, which have curtailed our revenue and deeply impacted our parishioners and neighbors, were further compounded by the over $8 million we have paid out this year through the New Jersey Independent Victims Compensation Program to victims of clergy abuse, money which we have had to borrow. Additionally, the recent repeal of the statute of limitations has resulted in over fifty lawsuits being filed against the diocese involving long-ago claims of abuse. If it were just the pandemic, or just the costs of the Victims Compensation Program, we could likely weather the financial impact; however, the combination of these factors has made that impracticable. Because of this, today I announce that the Diocese of Camden is filing for reorganization under Chapter 11 of the United States Bankruptcy Code.

Bloomberg News reports on the filing.

Administrative Offices of New Orleans Archdiocese File For Bankruptcy

On Friday, the Catholic Archdiocese of New Orleans announced that the Administrative Offices of the Archdiocese have filed for Chapter 11 bankruptcy reorganization, saying in part:

The move was necessitated by the growing financial strain caused by litigation stemming from decades-old incidents of clergy abuse as well as ongoing budget challenges. The unforeseen circumstances surrounding COVID-19 have added more financial hardships to an already difficult situation.  

This filing only affects the Archdiocesan administrative offices.... The Archdiocese’s action will not affect individual church parishes, their schools, schools run by the various religious orders, or ministries of the church. These offices will continue daily ministry as usual....

The intention of the filing is to allow time to develop a reorganization plan detailing how available assets and insurance coverage will be used to settle outstanding claims and to negotiate reasonable settlements while enabling the administrative offices to continue and emerge better prepared for the future. This reorganization will also allow the Archdiocese to address remaining clergy abuse cases in a way that will allow funds to go directly to victims instead of funding prolonged, costly litigation.