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The Diocese of Rockville Centre has reached a preliminary $323 million settlement in its bankruptcy case, which involves around 500 sex abuse claims. This settlement introduces a novel strategy where parishes are required to declare an "abbreviated bankruptcy." According to the diocese, this process is expected to be resolved within 48 hours of filing and aims to secure a release from liability without closing any parishes.
Marie T. Reilly, a professor at Penn State Law and expert in bankruptcy law, noted that this approach is unprecedented in Catholic bankruptcy cases. She explained that the move could be an attempt to navigate around a recent Supreme Court decision in Harrington v. Purdue Pharma. The ruling stated that bankruptcy courts cannot confirm plans including releases for non-debtors unless all affected creditors consent.
Reilly highlighted the necessity for the diocese and insurers to obtain a comprehensive release from sex abuse claims against both the diocese and its parishes. The bulk of the settlement cost will be borne by the Diocese of Rockville Centre along with related entities, totaling $234.8 million, while insurance companies will contribute over $85 million and counsel for the creditors’ committee will add $3 million.
Reilly explained that insurers require complete assurance of liability release before paying out claims. By having parishes file their own Chapter 11 cases, they become debtors eligible for releases under current legal standards.
Despite uncertainties about how this process will work technically or legally, Reilly believes it aligns with a joint plan agreed upon by all parties involved—parishes, the diocese, and insurers—which would provide necessary releases from all sex abuse claims.
The complexity of securing unanimous creditor consent poses challenges in such settlements. Reilly pointed out that sexual abuse claimants often have different legal representations with varying agendas, making it difficult to achieve unanimity.
To mitigate risks associated with dissenting creditors potentially blocking settlement confirmation, Reilly suggested that declaring abbreviated bankruptcies allows parishes to become temporary debtors solely for executing prearranged settlements without altering their operations significantly.
Gina Christian reports on this development as part of her role at OSV News.
