Crux reports:
As dioceses across the country continue to face multi-million dollar payouts related to clerical sex abuse, some bishops have relied on advice from lawyers to reconfigure the property of their dioceses into charitable trusts.
The practice - which has been implemented by several dioceses after the clerical sex abuse revelations of the early 2000s - creates significantly different outcomes for dioceses and abuse victims in the case of bankruptcies.
Critics say the moves shield assets that could be paid to victims of clerical abuse and may even be illegal. However, Church officials defend the practice, saying their actions were intended to better align the dioceses’ corporate status with canon law. Other dioceses say they acted to ensure the long-term viability of the Church.
It strikes me that both the critics and the defenders are correct. In an article I coauthored with former student Aaron Cole, I argued that the corporation sole--a common form of legal organizations used by Catholic dioceses in the US was incompatible with canon law:
… the Church, as a matter of doctrine and canon law, is composed of numerous united but distinct entities, subject in varying ways and degrees to ecclesiastical control. Each separate entity possesses rights (including rights of ownership) that are enforceable, under church law, against the other entities. The assets of the Catholic Church, under canon law, thus do not belong to a single owner. Instead, Church assets “belong to many owners: the Apostolic See, individual dioceses, institutes of consecrated life, societies of apostolic life , parishes, other public juridic persons, private juridic persons, and natural persons individually and in association.”
Accordingly, centralization of “ownership and control of all church property within a diocese is contrary to the law of the Church.” The use of a corporation sole to hold title to the ecclesiastical property of the juridic persons within the diocese’s territory thus is a significant distortion of the Church’s polity. Indeed, in 1911, the Holy See told the American bishops that it disapproved of using a single corporation sole as some legal owner of all property within a diocese; indeed, the Holy See encouraged the separate incorporation of individual parishes. Presumably, the same would be true where a diocese civilly incorporated using some other statutory form, such as a nonprofit or religious corporation, holds secular legal title to the ecclesiastical property of all juridic persons within the diocese.
Second, incorporation as a corporation sole exposes the assets of parishes and other juridic persons, which in canon law are the property of such persons, to the claims of creditors of the diocese. Conversely, by centralizing civil ownership in a single entity, the corporation sole also exposes “all parochial and other church-related assets within a diocese to satisfy creditors’ claims against any individual parish or institution.” Again, the same concerns would arise where a diocese civilly incorporated as a nonprofit or religious corporation claiming secular legal title to the ecclesiastical property of parishes and other juridic persons within the diocese.
The reorganization into a trust format thus is an appropriate response to a longstanding canon law problem.
But the reorganization also responds to the liability exposure the corporation sole created:
… bishops whose dioceses are incorporated as a corporation sole have argued that they hold legal title to parish assets in trust and for the benefit of the parish. This line of defense was prominently tested in the Archdiocese of Portland’s bankruptcy case. The Archdiocese had been incorporated as a corporation sole under Oregon law. Only one of the 124 parishes with the Archdiocese had been separately incorporated. The three Catholic high schools within the Archdiocese were not separately incorporated. When the Archdiocese declared bankruptcy under the weight of numerous priest sex abuse claims, the Archbishop claimed that the bulk of the Archdiocese’s assets were in fact held in trust for the benefit of the unincorporated parishes and other juridic persons within the diocese.
The Bankruptcy Court first held that the freedom of religion clauses of the First Amendment did not deprive the court of jurisdiction over the question of whether the assets purportedly held in trust were properly part of the bankruptcy estate and thus subject to the claims of the Archdiocese’s creditors. The court then held that those same clauses did not require the court to defer to canon law in determining the ownership of the assets in question. Next the court held that Oregon state corporation law likewise did not require the court to defer to canon law in determining the ownership of the assets in question.
Turning to the merits, the court noted that “[e]ven debtor’s own canon law expert acknowledges that being a separate juridic person under canon law does not give that juridic person a civil law identity.”
In fact, unincorporated religious associations are not legal persons that may take title to real property in their names. Because the parishes are not separately incorporated, as they could be under Oregon religious corporations law, they cannot hold title to real property. They are not separate from, but are merely a part of debtor.
The court also rejected the Archbishop’s argument “that, even if the parishes are not legal entities that can hold title to real property, they have sufficient legal existence to allow them to be beneficiaries of a trust.”
The reorganization presumably is intended to solve that problem by creating real trusts.
Is there anything wrong with what the Church is doing? The tragic dilemma of the priest sex abuse scandal is the inherent tension between providing just compensation for victims and preventing litigation from creating an existential threat to the Church.
As Cole and I explained:
In many dioceses, there are hundreds of separate juridic persons, each ministering to numerous worshippers and even non-Church members. If a court were to treat all of those juridic persons as alter egos of the diocese, the assets of many parishes and other ministries that had no connection with priest sex abuse would be made available to satisfy the claims of sex abuse plaintiffs. Inevitably, execution of a judgment against their assets would impede, if not destroy, the ability of these ministries to serve the needs of their congregants. Indeed, the mere threat of liability might do so: “Both church and society will suffer if the continuation of ministries prompted by compassion—ministries often involving risks—is stopped short by the nervous calculation of legal liabilities.”
