The Diocese of New Orleans Files for Bankruptcy in the Middle of Litigation




As states pass laws to give victims of sexual abuse more time to file their lawsuits, the Catholic Church faces crushing legal liability. Many dioceses are suddenly the defendant in dozens of sexual abuse claims that date back decades and are now worried whether they will be able to continue to operate in light of the amount of money that it will take to compensate plaintiffs. As a result, many dioceses have been seeking protection in bankruptcy court to limit their legal exposure. This tactic has worked for the dioceses that have employed it. Now, the latest diocese to file bankruptcy is facing stiff opposition to its bankruptcy filing from victims of sexual abuse with lawsuits in state court.

The Diocese of New Orleans filed for bankruptcy protection on May 1. At the time, the diocese faced numerous lawsuits brought by plaintiffs who have alleged that they were abused as children. Filing bankruptcy will automatically put a halt to legal proceedings with the bankruptcy is being addressed. There is an automatic stay that prevents creditors from taking action against the debtor during bankruptcy proceedings. At the time of the filing in New Orleans, there were 34 lawsuits that were frozen.

Numerous State Lawsuits Have Been Frozen Due to the Filing


When a debtor is being sued files for bankruptcy, the lawsuits are normally taken from state court and moved to federal court. This would adversely impact the plaintiffs' efforts to conduct discovery in their cases.

The plaintiffs in the cases have filed a motion to dismiss the bankruptcy filing in its entirety. They are arguing that the bankruptcy filing is a litigation tactic that is simply designed to stop the litigation. The plaintiffs claim that the Diocese of New Orleans is growing concerned that the plaintiffs are getting closer to obtaining internal church documents that detail the Diocese's efforts to coverup decades worth of abuse. In Catholic Church sex abuse cases, these documents usually exist, and they are damning against the Church. The plaintiffs want their cases to proceed as they were instead of being forced to move forward in federal court.

The motion to dismiss is based on statements by Diocese officials that say that the Diocese is financially solvent with over $200 million of assets, including $50 million in cash. The Diocese argues that it has filed for bankruptcy so that it has the ability to pay all of the allowed claims. Nonetheless, the dioceses are not public to the same reporting rules as public corporations, so the public knows very little about their finances beyond what they say. Many feel that they do not get the full picture when a Catholic diocese claims bankruptcy to the court. They believe that the Church has the upper hand in these forums and proceedings.

Victims' groups are complaining that the Diocese filed for bankruptcy in bad faith. Their attorneys allege that this is a common tactic used by dioceses across the country who they claim will stop at nothing to protect their assets from these lawsuits.

The Diocese had filed for bankruptcy not long before the Archbishop was scheduled to testify in court as part of a deposition. In many cases, plaintiffs have been able to prove that the effort to hide abuses reached the very top of the diocese. Now, the Archbishop's testimony is off for now.

Victims Will Still Be Able to Recover


While the trials may be halted, filing for bankruptcy does not keep sex abuse victims from being able to recover for the harm that they suffered. Many dioceses have pursued bankruptcy. As part of the bankruptcy plan, these dioceses have established settlement funds for victims. Nonetheless, some victims end up receiving less than they otherwise would because the diocese is able to protect much of its assets in the bankruptcy process.

The Dicoese of New Orleans has already paid out close to $10 million in sex abuse claims and has set aside millions more to cover future settlements. However, given the fact that many sex abuse victims receive an average of over $1 million in a settlement, the liability may be enough to overwhelm the financial resources of the Diocese.

Dismissal of a bankruptcy filing in federal court is an extraordinary remedy that is not often granted. The laws are construed to favor the debtors. Thus, the plaintiffs' claims are a longshot without much chance to succeed.



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