To date, over 19,000 sexual abuse claims, totaling claims in an aggregate amount of more than $4 billion, have been filed against individual dioceses within the Catholic Church. This influx of claims comes as the result of certain state legislatures allowing individuals with previously time-barred claims to bring civil lawsuits against the dioceses. Consequently, at least eighteen Catholic dioceses have filed voluntary petitions for relief under title 11 of the United States Code (the “Bankruptcy Code”).
In many cases, the majority of the Catholic dioceses’ assets are held by inter-related, non-profit Catholic entities that often collectively hold billions of dollars in net assets. However, because these claims are being brought solely against the dioceses, and not against their affiliated entities, the claimants are limited to recovering only from the assets independently held by the individual dioceses. Because the dioceses independently hold only a fraction of the Churches’ collective assets, many that face these claims have voluntarily filed for bankruptcy. Plaintiffs have therefore tried to access the assets of the related non-profit, nondebtor entities based on their affiliation with the archdioceses.
Part I of this memorandum discusses the courts’ power to combine a debtor’s assets with the assets of an affiliated nondebtor through the remedy of substantive consolidation. Part II explains the specific rights of non-profit entities under the Bankruptcy Code, and how those rights prevent creditors from accessing a non-profit, nondebtor entity’s assets.