Lawmakers in the United States tried to give justice to children whose abuses were committed over decades by giving them more time to file lawsuits. Some of these defendants, such as youth and church organizations, have found refuge in America’s bankruptcy courts.
Nearly 11,000 New York cases were filed in state court. Many of these lawsuits sought to hold Catholic bishops accountable for clergy sexual abuse. This was after the 2019 law that suspended limitations, which would otherwise have barred most of the lawsuits. Four New York diocesan dioceses, which collectively had to face more than 500 claims of sexual abuse by clergymen filed bankruptcy. This halted all cases and prevented anyone from suing later. The plaintiffs were forced to reach a settlement with the bankruptcy court for any abuse claims.
This pattern is now widespread in the United States according to a Reuters analysis of bankruptcies triggered by child-sexual-abuse litigation.
Nonprofit organizations are often among bankruptcy defendants. According to court filings, since 2009, 13 Catholic institutions and the Boy Scouts of America in New York have each cited state laws that extend abuse victims’ right to sue to be factored in their decision to file for bankruptcy protection.
Stephen Rubino, who has been representing clergy victims of abuse for over 30 years, stated that such bankruptcies “counterpunch” state laws and allow more victims to pursue justice through lawsuits.
There are 23 states, 2 territories, and Washington, D.C. that have laws that suspend the statute of limitations to sexual abuse victims previously barred from filing lawsuits over old cases. These suspensions last for a minimum of one year and allow plaintiffs to bring new cases involving older abuse cases. In 2019, such laws were passed in California, New York, and many other states.
Some legal experts and advocates claim that bankruptcy courts reduce the effectiveness of statutes. The Chapter 11 bankruptcy filings are overseen by judges who set the deadlines for sexual abuse claims to be filed.
The Reuters Review of Bankruptcies revealed that victims who fail to file bankruptcy claims by the deadline are either denied benefits or forced into competition for small amounts reserved for future claimants.
“As we dramatically increase access to justice through statutes-of-limitations reform, we have more organizations going into bankruptcy because, frankly, bankruptcy law favors the organizations,” said Marci Hamilton, the founder of Child USA, a group that has advocated for laws expanding sexual-abuse victims’ rights to sue.
According to studies and victims’ lawyers, many child victims of sexual abuse don’t disclose their identity until later in life. Some victims are unaware of the bankruptcy proceedings that may affect them, until too late.
Hamilton stated that victims may be forced to file bankruptcy claims before the deadlines for filing them are met. She said that abuse claimants are limited in their leverage in Chapter 11 cases, which halt litigation and protect organizations like dioceses schools and youth groups from future and current lawsuits.
Hamilton stated that the federal bankruptcy law was just flawed when it came to victims of sexual abuse. Their voice has been stolen.”
Reuters reported on 23 settlements that were reached in bankruptcies that resulted from child-sexual-abuse scandals. These cases halted future and current lawsuits and required claimants to apply for compensation through a trust. These cases were involving the USA Gymnastics, 21 Catholic organizations, and Boy Scouts. In 2018, the youth gymnastics organization filed for Chapter 11 protection amid an influx of lawsuits alleging that Larry Nassar, a child sexual abuser, had abused them. Nassar is currently in prison and cannot be reached for comment.
USA Gymnastics and Boy Scouts did not comment on this story.
Boy Scouts, among others, argue that bankruptcy plans are meant to compensate claimants fairly and equally. Civil litigation may result in victims receiving large jury verdicts while others receive smaller or no judgments. USA Gymnastics claimed it applied for bankruptcy protection to “pave the way towards a settlement” with survivors of abuse. The plan paid them $ 380 million last year.
A review of cases shows that the organizations often run extensive marketing campaigns in order to let potential victims know that they are eligible for compensation in Chapter 11 cases. For example, the Boy Scouts stated on its website that the organization had launched a comprehensive noticing campaign in the media.
According to Reuters, the Madison Square Boys & Girls Club of New York City referred to a June bankruptcy declaration by Jeffrey Dold, its chief financial officer. Dold stated that the club sought Chapter 11 protection following the failure to address 140 claims of sexual abuse filed by volunteers and employees between 1940 and 1980. These claims were all made after New York’s claims revival law. Dold stated that the club declared bankruptcy “to give a venue to deal with those claims fair and equitably.”
The U.S. Conference of Catholic Bishops did not comment on new state laws, or how they would affect Catholic organizations facing sexual abuse lawsuits. It stated that it will not comment on the new state laws or their impact on Catholic organizations facing sexual-abuse lawsuits. Conference participants emphasized the importance of pastoral outreach to victims of abuse and stated that victim assistance coordinators are available in local dioceses for survivors to help them seek healing.
Bankruptcies of nonprofits do not protect individual abusers, but victims may still sue. They grant immunity from lawsuits to entities that oversaw the abuse of employees and volunteers.
As well as some plaintiffs’ lawyers, attorneys representing victims of sexual abuse claims against organizations argue that bankruptcy is a fair and equitable way to pay them. Many of these people want to avoid the hassle of trial or a lawsuit. Susan Boswell, who was a former lawyer representing dioceses throughout bankruptcies across the country, stated that organizations and insurance companies paying settlements will not agree to any agreement that does not protect them against additional liability.
She said that if you don’t possess finality, you will never be able “to get any of these cases completed.”
The federal bankruptcy courts of America play an important role in commerce and justice. They allow businesses that are overwhelmed with debt to have an ordered process for settling their creditors through a liquidation or reorganization. These debts may include liabilities for lawsuits arising from fraud, deadly products, or any other wrongdoing.
Over time, the power of U.S. bankruptcy judges to grant bankruptcy protection to corporations in bankruptcy and their leaders has increased. The legal strategies of those seeking Chapter 11 protection have also changed: Corporations that are embroiled in scandals now create subsidiaries to take on their litigation liability and declare bankruptcy.
Nonprofits facing sexual abuse lawsuits are taking a page out of corporate bankruptcy. They often seek non-debtor release for the entities they have associated with, like individual parishes and religious schools. These releases protect individuals and organizations from legal action over bankruptcy settlements. These liability protections are often obtained by leaders and affiliated organizations that have piggybacked on the Chapter 11 filing of a non-profit.
A judge may appoint someone who will represent the rights of victims that haven’t yet filed a lawsuit or brought a case in bankruptcy court. These appointees, also known as future claims representatives are usually lawyers or financial professionals. They are paid by debtors and are responsible for estimating future claims and funding them. According to court records and lawyers involved in proceedings, late filers are often able to compete for lower amounts than those who file by the deadline. Rubino stated that unidentified claimants are “numbers” on a chart.
C is a former Boy Scout who claims that a Scout leader had abused him as a teenager. Reuters was able to identify C, a former Scout now aged 40 by only his initials.
In June, he filed for compensation under the Boy Scout’s bankruptcy. This was well after the deadline of November 16, 2020 to file claims. His lawyer stated that C will not be able to receive any of the $2.46 million settlement reached by Boy Scouts with sexual abuse claimants. According to C’s lawyer, and after a thorough review of the Boy Scouts Settlement Terms, claimants who miss deadlines face additional obstacles and conditions.
A judge approved the Boy Scouts bankruptcy restructuring plan in September. This stops all litigation against them, their local councils and churches, as well as any other organizations that have chartered scouting activity.
C claims that he has been abused and the bankruptcy’s claim-filing rules prevail over California’s recent law, which expanded the rights of sexual-abuse victims to sue. Because bankruptcy courts are federal and have the ability to override or halt state lawsuits, court orders, and statutes, they generally preside over state laws.
U.S. Bankruptcy Judge Laurie Selber Silverstein argued that the Boy Scouts Settlement was a better option for victims than compensation seeking in court courts.
Silverstein did not respond to this story. She noted in a July opinion that she approved aspects of the Scouts’ restructuring plan. However, Silverstein did not comment on the story. With some Boy Scouts lawyers and others, she agreed that a settlement was the best option. However, this would leave the claimants with little to no recovery.
The judge stated that the boys, now men, seek and should be compensated for their “abuse” which had “a profound impact on their lives and for whom no compensation is ever enough.
C stated that C is not entitled to fair compensation and that he cannot present the Boy Scouts’ events in court.
C was raised in a volatile home in Northern California. C’s mother believed that the Boy Scouts provided a secure environment. C was unable to accept that he had been abused by a Scout leader for years. He told Reuters that he struggled to admit it. C had always trusted his Scout leader.
He said that he had spoken to another Scout several times over the years about his leader’s conduct. C was moved to tears by the conversation and began to think about the effects of the abuse on his life. In an interview, he said that his struggles in relating with others started to make sense. C lives with his mom sleep in the car sometimes and struggle to find a stable career.
C stated, “I am waiting to stand before a judge,” and hoped that the judge would say “What happened to you was wrong.”
“THE PRIME WOULD NEVER DO THAT”
According to some plaintiffs’ lawyers, bankruptcy proceedings may be a more effective way of compensating many victims of sexual abuse than trial courts. Many victims don’t wish to have to sue their abusers and the organizations that enabled them. Dan Lapinski is a Motley Rice LLC attorney representing Boy Scouts claimants. They can file claims confidentially through bankruptcy to seek compensation and not have to relive their traumas in public.
Lapinski stated that “I have clients that fall in that category” regarding the Scouts case, noting, however, that some victims may not have filed their claims outside of bankruptcy court.
Boswell, a retired lawyer, stated that the financial coffers of individual diocesan dioceses is usually less than large corporate ones. She has also represented diocesan trustees who were facing allegations of abuse in bankruptcy proceedings. She said that while expensive litigation reduces the amount of money available to compensate, a bankruptcy restructuring can try and pay all claimants equally.
Those who file bankruptcy after the deadlines have passed often find little to claimants.
Henry, a former altar boy of 59 years attended the church in Minnesota as part of a family visit to Minnesota. Henry stated that Henry spoke with parishioners after the service about the financial consequences of 2018’s bankruptcy of Winona Rochester diocese. This was partly due to sexual-abuse allegations.
Henry witnessed the abuse for himself. He said that a priest attacked Henry after he had swum in the pool. Henry said that Henry kept the details of what had happened secretly because he believed nobody would believe him. Henry spoke only on condition that his middle name is used.
His community believed that the church wouldn’t do it and that priests would not do it before scandals of clergy sexual abuse emerged. You’re almost squelched right from the beginning.
Henry said that he was inspired by the news of Henry’s bankruptcy at church on this day. He contacted his lawyer two days later to file a late claim. However, a very small amount — $750,000 maximum — was set aside to pay claimants who made their claims by the 2019 deadline. Henry was awarded $20,000 which he called “a laughable amount”.
Henry may receive additional money depending on the number of claims that are filed, and how the trustee views Henry’s claim. According to documents Reuters examined, a final decision will not be made until a deadline has passed for late claims. However, the judge declined to comment.
The settlement for the 145 victims of sexual abuse who had filed their claims on time was almost $28 million. This would be approximately $190,000. According to court documents, the amount that individual claimants may receive will depend on several factors, including how severe and long-lasting their abuse was.
Henry stated that Henry didn’t like the fact they placed an arbitrary limit on anyone who submitted after the deadline.
Peter Martin, the spokesperson of Winona Rochester diocese declined to comment about its bankruptcy proceedings. Martin didn’t respond to questions about Henry’s sexual abuse allegations.
Some legal experts believe that statutes of limitations are necessary for good reasons.
Historically states have enacted these laws to encourage plaintiffs to file timely lawsuits based upon “reasonably new” evidence. Marie T. Reilly is a Penn State Law professor at University Park. Reilly argues the inability to allow victims to sue after the abuse is reported threatens the integrity and the law system, as it seeks retribution against Catholic dioceses.
She said that memories can become blurred, witnesses may die, and documents might disappear over time. “The ability of a defense to be mounted deteriorates over time,” Reilly stated.
New York State Senator Brad Hoylman (a Democrat) sponsored the bipartisan state legislation reviving allegations of child sexual abuse. According to him, he pushed for the bill as it is difficult for victims of abusers “in positions of power and trust” to make allegations.
Bankruptcy filings are devastating for thousands of victims who have rediscovered their legal rights and seek justice from institutions at trial courts.
According to the lawsuit filed by Doug Kennedy, a Boy Scouts camp worker in New York’s upstate was subject to repeated rapes and other forced sexual acts. Boy Scouts bankruptcy halted his case. He told Reuters that he buried all his traumas in the years following the attacks.
Bruce DeSandre was the man Kennedy accuses of sexual abuse. He declined to speak through his lawyer. DeSandre, in a court filing, denied Kennedy’s accusations of sexual abuse. He also argued that the New York revival law was not constitutional.
Kennedy was now a professor at a college and finally realized the severity of his abuse. The statute of limitations had expired for filing a suit.
He retreated to Virginia Wesleyan University’s office in January 2019 and drew shades while he watched the streaming video feed from the New York State legislature vote on changing the law to allow victims such as Kennedy to sue for abuses that took place long ago.
He said, “I fell apart completely,”
He hoped that he would be able to finally hold those responsible for the wrongs done to him. He filed his suit against DeSandre and a Boy Scouts council later that year.
Six months later, Boy Scouts declared bankruptcy. Kennedy stated that his hope was wiped away after hearing the news.
He said, “Bankruptcy does not equal justice.” Bankruptcy can be a business.
