Wilmington diocese judge to ponder how far stay extends

By Matt Miller
Daily Deal
October 30, 2009

While the Catholic Diocese of Wilmington Inc. is yet another Roman Catholic jurisdiction to use bankruptcy to block sexual abuse lawsuits, a Delaware judge will now have to decide just how far that restraint extends.

Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Monday will consider whether to lift a stay on one lawsuit and allow another to proceed, as well, with the diocese as a defendant. Lawyers for the sexual abuse victims have requested that the stay conferred by the diocese's Chapter 11 filing on Oct. 18 be lifted.

One lawsuit is scheduled for trial on Nov. 16. It is directed against a Roman Catholic order, the Oblates of Saint Francis de Sales, as well as an individual priest. But the Wilmington diocese is also named as a secondary defendant in the suit.

Lawyers for the victims want the judge to allow diocesan participation. Lawyers for the diocese are expected to not only oppose participation, but could argue that because of diocesan involvement, the lawsuit should be held back.

The other case is the lawsuit that prompted the diocese to file for bankruptcy in the first place. That trial, which was to begin on Oct. 19 in a Delaware state court, includes a priest and parishes within the Wilmington diocese, as well as the diocese itself.

The question is whether that suit can continue at all.

Bankruptcy normally stays lawsuits directed against the debtor but is less absolute on suits involving related parties.

Complicating matters, Delaware's 57 parishes didn't file for Chapter 11. They are separately incorporated.

Like other bankruptcy judges before him, Sontchi must grapple with the relationship between the diocese and its constituent parishes, how much independence the parishes have and how much control a bishop and his diocesan officials maintain. The subtext is the size of the debtor's estate and whether parish assets are at risk.

Wilmington is the seventh diocese to declare Chapter 11. Those that successfully reorganized include Davenport, Iowa, Portland, Ore., Spokane, Wash., and Tucson, Ariz. San Diego was dismissed and settled out of court.

Fairbanks, Alaska, is ongoing. This week, the Northern Alaskan diocese, which filed for bankruptcy on March 1, 2008, submitted a revised reorganization plan.

None of the previous cases resolved the parish-diocese relationship in anything close to a definitive manner, although judges in Portland and San Diego tended to side with the position that the parishes have little independence from the dioceses. Those parishes weren't incorporated and were held in a kind of trust by the bishops in the dioceses.

Of the previous six diocesan bankruptcies, only Davenport had parishes that were individually incorporated.

However, in all cases, the Roman Catholic Church argued that parishes were independent entities from the diocese, with separate assets. Lawyers for the victims argued that the diocese and its officials maintain almost absolute control and that the parish assets should be part of the estate.

In written arguments for a stay on lawsuits against parishes and priests, Delaware diocesan lawyers maintain that the diocese is the main target for the lawsuits. They also argue that any lawsuit would require participation, distract personnel and deplete resources.

Lawyers for the victims, meanwhile, will argue on Nov. 2 that they need to continue with some depositions, because some of the victims are infirm or dying. A fourth matter is whether the diocese violated the settlement terms of an earlier lawsuit. In April, the diocese settled for $1.525 million the abuse case of Douglas McClure. A nonmonetary condition of settlement was a written apology. McClure died shortly after. The diocese has yet to send any apology letter to McClure's widow, according to Stephen Neuberger of Neuberger Firm PA, who acted as McClure's counsel. He wants permission to reopen that case.

Debtor counsel is Robert Brady and James Patton of Young Conaway Stargatt & Taylor LLP, which is the diocese's longtime outside counsel.

James Stang and Hamid Rafatjoo of Pachulski Stang Ziehl & Jones LLP are appearing for the unofficial committee of abuse survivors. Pachulski Stang has represented victims in almost all previous diocesan bankruptcy cases. Two Wilmington-based firms, Neuberger Firm and Jacobs & Crumplar PA, have represented the 88 victims in their lawsuits against the Delaware diocese.